The Union Budget on Monday could bring some cheer for corporate taxpayer, as it is likely to remove fringe benefit tax (FBT). Companies have been demanding abolition of FBT since it was first implemented in 2005-06. In the Interim Budget, government projected to earn Rs 10,200 crore from FBT.
Under FBT, a corporate has to pay taxes on certain expenditures as shown in the chart. It is levied on all sort of expenditure including employees’ welfare, conveyance, contribution to superannuation fund beyond Rs 1,00,000, benefit arising from stock options and free/concessional ticket provided by a employer to employees.
A senior government official said the tax department is not very enthusiastic to continue with FBT as it is difficult to implement in most of the cases, like expenditure incurred on eatables and other items. In many cases, it also affects the efficiency of a company particularly, the FBT on superannuation beyond Rs 1,00,000 and ESOP. Both are important to retain talented employees.
Under FBT, in case of superannuation contribution by a company beyond Rs 1,00,000, the entire amount is taxed at the rate of 33.9%, including the cess and surcharge. However, in case of expenditure incurred on giving gift to employees or scholarship to employees’ children, 50% of the amount is taxable. In other cases, like entertainment and telephone, only 20% of the expenditure is taxed. Therefore the effective rate comes down to 6.8%.
On Thursday, The Economic Survey has also suggested to abolish taxes like FBT, cash transaction tax and securities transaction tax to simplify the system. A source said that chances of dropping CTT and STT is not very bright as they are used to track those who do not pay taxes and do business in the cash market.
Source: ET
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