Fringe Benefit Tax (FBT) is a tax levied on perquisites-or fringe benefits -provided by an employer to his employees, in addition to the cash salary or wages paid. Fringe Benefit Tax was introduced in India in the year 2005-2006.
Fringe Benefit Tax is subject to varying treatment in different
countries. These benefits are either taxed in the hands of the employees
themselves or the value of such benefits is subject to a 'fringe benefit
tax' in the hands of the employer.
The rationale for levying a fringe benefit tax on the employer lies in
the inherent difficulty in isolating the 'personal element' where there
is collective enjoyment of such benefits and attributing the same
directly to the employee.
Moreover, in cases where the employer directly reimburses the employee
for expenses incurred, it becomes difficult to effectively capture the
true extent of the perquisite provided because of the problem of cash
flow in the hands of the employer.
Therefore, a two-pronged approach has been adopted for the taxation of
fringe benefits under the Income-tax Act.
Perquisites which can be directly attributed to the employees are taxed
in their hands in accordance with the existing provisions of section
17(2) of the Income-tax Act and subject to the method of valuation
outlined in rule 3 of the Income-tax Rules. In cases, where attribution
of the personal benefit poses problems, or for some reasons, it is not
feasible to tax the benefits in the hands of the employee, it is
proposed to levy a separate tax known as the fringe benefit tax on the
employer on the value of such benefits provided or deemed to have been
provided to the employees.
Fringe benefits shall be deemed to have been provided if the employer
has incurred any expense or made any payment for the purposes of:
(b) festival celebrations;
(d) use of club facilities;
(e) provision of hospitality of every kind to any person whether by way
of food and beverage or in any other manner, excluding food or beverages
provided to the employees in the office or factory;
(f) maintenance of guest house;
(h) employee welfare;
(i) use of health club, sports and similar facilities;
(j) sales promotion, including publicity;
(k) conveyance, tour and travel, including foreign travel expenses;
(l) hotel boarding and lodging;
(m) repair, running and maintenance of motor cars;
(n) repair, running and maintenance of aircraft;
(o) consumption of fuel other than industrial fuel;
(p) use of telephone;
(q) scholarship to the children of the employees.