The Finance Act 2009 abolished the Fringe Benefit Tax (FBT) payable by employers on fringe benefits provided to employees, and restored the taxation of these benefits as perquisites at the hands of employees.
But relevant rules required to compute the valuation of such perquisites were not notified immediately, leading to much speculation.
The Central Board of Direct Taxes on December 18, 2009 has put all speculation to rest by notifying the new valuation rules for taxing perquisites, retrospectively applicable from April 1, 2009.
There are no major surprises as the Rules are almost a replica of the rules that prevaled prior to the FBT regime, with only minor modifications.
Benefits provided by employer such as chauffeur-driven company car, club membership fees, personal travelling expenses, food and beverages, Employee Stock Options, gift vouchers, etc have been restored within the personal tax ambit.
Most of these benefits would be taxable on basis of actual reimbursements (in excess of specific limits wherever specified) to the employee.
To make a specific mention, motor vehicles and chauffeurs provided to employees face a marginally higher tax burden as compared to the old rules prevalent before .
Valuation for the purpose of computing the benefit for ESOPs has also been clarified. For shares of a listed company, FMV shall be average of opening price and closing price on the date of exercise on stock exchange.
In case of multiple listing of shares, the FMV shall be determined with reference to the prices prevalent on the stock exchange which recorded highest trading volume.
Since the Rules are lately notified, salaried taxpayers enjoying perquisites would see more outflows of taxes in the new year, especially where taxes has not been deducted from perks by the employer.
There is no doubt about the consequent decrease in net tax home salaries, but by now the common man may have expected and somewhat budgeted for this outflow on account of restoration of taxing perks.
It is good that there is clarity on perquisite taxation. Hopefully, one can now at least foresee or expect fewer changes on taxing perks from Budget 2010 which will be shortly presented in the Parliament in February 2010.
For shares of unlisted company, FMV needs to be determined by the Merchant Banker on the specified date.