What is fringe benefit tax?
The taxation of perquisites — or fringe benefits — provided by an employer to his employees, in addition to the cash salary or wages paid, is fringe benefit tax.
Any benefit or perk employees get as a result of their employment are to be taxed, but the amount is decided by the employer. This includes employee compensation other than the wages, tips, health insurance, life insurance and pension plans.
Fringe benefits as outlined in the Finance Bill mean any privilege, service, facility or amenity directly or indirectly provided by an employer to his employees — including former employees — by reason of their employment. They also include reimbursements.
Which fringe benefits are taxed?
As per the Finance Bill, fringe benefits shall be deemed to have been provided if the employer has incurred any expense or made any payment for entertainment, festival celebrations, gifts, use of club facilities, 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, maintenance of guest house, conference, employee welfare, use of health club, sports and similar facilities, sales promotion — including publicity, conveyance, tour and travel, foreign travel expenses, hotel boarding and lodging, repair, running and maintenance of motor cars and consumption of fuel other than industrial fuel.
Who pays the tax?
Fringe benefit tax is payable by an employer who is either an individual or a Hindu undivided family engaged in a business or profession; a company; a firm; an association of persons or a body of individuals; a local authority; a sole trader, or an artificial juridical person.
The tax is payable in respect of the value of fringe benefits provided or deemed to have been provided by an employer to his employees during the previous year.
The value of fringe benefits so calculated is subject to additional income tax in respect of fringe benefits at the rate of 30 per cent, as provided in the Finance Bill.
The fringe benefit tax is payable by the employer even where he is not liable to pay income tax on his total income computed in accordance with the other provisions of this Act.