FAQs on fringe benefit tax: Part I
32. Whether gross expenses or net expenses (i.e. net of recovery) are to be considered for the purposes of FBT? For example, part of the expenses on various items like travel, may be recovered from the employees. Therefore, whether FBT would be levied on the gross travel expenditure or on the 'net' travel expenditure'?
Where the employer recovers from its employees, any amount of expenditure incurred for the purposes listed in clauses (A) to (P) of sub-section (2) of section 115WB, the value of the fringe benefits shall be determined with reference to the net expenditure and not gross expenditure.
For example, if an employer incurs a total expenditure of Rs 10 lakh on repair, running and maintenance of motor-cars, and recovers Rs 1 lakh from its employees, the value of the fringe benefit in respect of repair, running and maintenance of motor-cars shall be calculated on the basis of the net expenditure of Rs 9 lakh (i.e., Rs 10 lakh minus Rs. 1 lakh.).
33. At times, an employer could have cost sharing agreement with its group companies wherein a particular item of cost will be shared in an agreed proportion. In such a case, for administrative convenience, the employer may pay for the total cost and claim reimbursement from other group companies. Whether the employer making the payment is liable to FBT on the whole amount or only in respect of his share?
The share of each of the group companies in the total expenditure is the expenditure incurred by the respective company though the payment is made by one company. Hence, the company making the payment shall be liable for FBT only in respect of its share. Similarly, the other group companies will be liable to FBT in respect of their respective shares.
34. Section 115WC(1)(a) provides for valuation of fringe benefits referred to in section 115WB(1)(b), at cost at which such benefits is provided by the employer to the general public. Does section 115WB(1)(b) therefore, apply only to a situation where the employer is in the business of carrying passengers, i.e., airline companies, surface transport companies, etc?
The provisions of clause (b) of subsection (1) of section 115WB read with the provisions of clause (a) of subsection (1) of section 115WC make it clear that they are intended to apply only to employers engaged in the carriage of passengers or goods or to agents of such employers. These provisions are not applicable to any other employer.
Expenditure on free or concessional ticket by such other employers will fall within the scope of clause (F) of subsection (2) of section 115WB and will be liable to FBT.
35. Whether expenses disallowed under section 37 of the Income-tax Act on the plea that the expenses are personal in nature, would also be liable to FBT?
Section 37 of the Income-tax Act provides that any expenditure laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head 'profits and gains of business or profession'.
Accordingly, any expenditure that is incurred for personal purposes is not allowable as deduction. Sub -section (2) of section 115WB provides for a levy on fringe benefits estimated on a presumptive basis using certain expenses as a measure.
To the extent the expenses incurred by the employer are personal in nature and have, therefore, been disallowed under section 37 of the Income-tax Act, such disallowance would not be liable to FBT. For example, let us assume a firm, being an employer, has incurred an expenditure of Rs. 100 towards tour and travel, of which Rs 40, is personal in nature. Therefore, the amount of Rs 40, being personal in nature, will be disallowed under section 37 of the Income-tax Act, and FBT will be levied on 20 per cent of the amount of Rs 60- (Rs 100-Rs 40).
36. Whether expenditure identified as bogus expenditure in income tax assessment will be liable to FBT?
Sub-section (2) of section 115WB provides that fringe benefits shall be deemed to have been provided by the employer to his employees if the employer incurs any expense on or makes any payment for the purposes referred to in clauses (A) to (P) of the said subsection.
If an expenditure is found to be 'bogus' on the plea that it has not been actually incurred, the same is not allowed as a deduction under section 37 of the Income-tax Act.
Accordingly, FBT will be levied only on such expenditure as is actually incurred for the purposes referred to in sub-section (2) of section 115WB. For example, if an employer has incurred Rs 1,000 towards travel, of which Rs. 200 is disallowed under section 37 of the Income-tax Act on the plea that it is 'bogus', FBT will be payable on 20 per cent. of Rs 800 (Rs 1,000 minus Rs 200).
37. Whether, for the purposes of payment of advance tax, depreciation should be taken on a pro-rata basis or lumped in the last quarter?
For the purposes of payment of advance tax on fringe benefits, tax depreciation should be taken on a pro-rata basis for payment of advance FBT.
38. Would contributions to approved gratuity fund or provident fund attract FBT?
Section 115WB read with section 115WC does not specifically contain any provision for chargeability of contribution to approved gratuity fund or provident fund to FBT. Accordingly, the contribution to the aforesaid funds would not attract levy of FBT.
39. Whether the provisions of FBT will apply to an assessee who has practically closed the business but is in the process of winding up?
Every employer, who incurs any expenditure of the nature referred to in sub-section (1) or sub -section (2) of section 115WB, would be liable to FBT.
40. Whether the FBT will be applicable to a company or a firm which is deriving income from house property like warehouses, IT park etc. and provides lot of other facilities in the course of letting out?
FBT is payable in respect of the fringe benefits provided or deemed to have been provided by an employer to his employees. Accordingly, every company or firm, being an employer is liable to FBT.
41. What should be the basis for allocating common expenditure in the case of an employer having multiple businesses including specified business such as hotels, construction, and pharmaceuticals which attract lower rate of FBT?
FBT is payable by an entity qua employer. Therefore, the expenditure incurred or payment made, for the various purposes referred to in clauses (A) to (P) of sub -section (2) of section 115WB, should be attributed to the various businesses on the basis of the share of the expenditure on wages and salaries in a particular business in the total expenditure on wages and salary in all businesses.
Where separate books of account are maintained for different business activities, the expenditure of the nature referred to in clauses (A) to (P) of sub-section (2) of section 115WB shall be taken with reference to each business activity.
42. How should the accounting records be modified in order to comply with the FBT?
There are no special requirements for accounting records under the FBT. However, the Institute of Chartered Accountants of India have advised Government that they will be issuing separate Accounting Standards to facilitate compliance with the provisions of the FBT.
43. Whether an employer is liable to FBT only if it is engaged in business and profession?
An employer is liable to FBT if it is engaged in business or profession or any activity, whether or not such activity is carried on with the object of deriving income, profits or gains.
44. Whether payment of leave travel concession or assistance to employees is liable to FBT?
The value of any travel concession or assistance received by an employee normally fall within the meaning of 'salary as defined in clause (1) of section 17 of the Income-tax Act. These benefits are taxable under the head 'Salaries' subject to the exemption under clause (5) of section 10 of the Income-tax Act. Accordingly, it would not be liable to FBT.
However, if the leave travel concession/assistance is not included in 'salary' as defined in section 17 will be classified as an expense for the purposes referred to clause (F) of sub-section (2) of section 115WB and will accordingly be liable to FBT.
45. How will the value of a free air ticket provided by an employer engaged in the business of carriage of passengers or goods by aircraft be taken e.g., normal fare or concessional fare e.g. apex fare or senior citizen's concessional fare or the actual cost of the ticket to the employer?
In terms of the provisions of clause (a) of sub -section (1) of section 115WC, the value of a free or concessional ticket is the cost at which the ticket is provided by the employer to the general public as reduced by the amount, if any, paid by, or recovered from his employees.
The cost at which the ticket is provided by the employer to the general public shall be the price of the ticket which an ordinary passenger is expected to pay on the date of purchase of the ticket for the date, time and the class of travel.
Similarly, in a case where an open ticket is issued a number of days in advance but the reservation is generally confirmed a few hours before departure, the value of the free or concessional ticket shall be the cost of the ticket which an ordinary passenger seeking reservation a few hours before departure is liable to pay as reduced by the amount, if any, paid by or recovered from the employees.
46. Whether section 115WB (1)(b) covers only free or concessional ticket and not leave travel assistance?
Section 115WB (1)(b) covers only free or concessional ticket provided by the employer for the private journeys of his employees or their family members.
47. Whether expenditure incurred by way of allowance to the employees, of the nature referred to in sub-clause (ii) of clause (14) of section 10 and specified in sub-rule (2) of rule 2BB like children education allowance, transport allowance (Rs 800) granted to employees, which are exempt in the hands of the employee, liable to FBT?
The allowances granted to the employees, of the nature referred to in sub-clause (ii) of clause (14) of section 10 and specified in sub-rule (2) of rule 2BB of Income Tax Rules are neither contributions to an approved superannuation fund nor represent the cost of free and concessional tickets for private journeys of employees or their family members.
These allowances fall within the meaning of 'salary' as defined in clause (1) of section 17 of the Income tax Act and, any expenditure incurred for the purposes of salary, does not fall within the scope of sub-section (2) of section 115WB.
Therefore, the allowances of the nature referred to in sub-clause (ii) of clause (14) of section 10, fall outside the scope of clauses (b) and (c) of sub-section (1) as well as sub-section (2), of section 115WB.
48. Whether lease rent paid or payable for lease of accommodation for staff (including brokerage paid for the same), against a fixed sum recoverable from employees, is liable to FBT?
The perquisites in the nature of accommodation taken on lease or rent by the employer is neither contribution to an approved superannuation fund nor represent the cost of free and concessional tickets for private journeys of employees or their family members.
Such perquisites fall within the meaning of 'salary' as defined in clause (1) of section 17 of the Income tax Act and, any expenditure incurred for the purposes of salary, does not fall within the scope of sub-section (2) of section 115WB.
Therefore, such perquisites fall outside the scope of clauses (b) and (c) of sub-section (1) as well as sub-section (2) of section 115WB.
49. What is the scope of the expression 'entertainment' in clause (A) of section 115WB(2)?
The meaning of the word 'entertainment' in clause (A) of sub -section (2) of section 115WB is of wide import. It includes all expenditure in connection with exhibition, performance, amusement, game or sport, for affording some sort of amusement and gratification.
50. An employer has an exclusive training centre which is used to train its employees on various topics. Would any expenditure in the nature of food or beverages provided by the employer at such training centre to the employees attending the training be excluded from 'fringe benefits' by virtue of the exception provided by section 115WB(2)(B)(i) or (ii)?
If an employer owns an exclusive training centre used to train its employees, such training centre shall be construed as an 'office or a factory' within the meaning of the exclusion provided in sub -clause (i) of clause (b) of sub -section (2) of section 115WB. Accordingly, any expenditure on food or beverages provided by the employer at such training centre to the employees is not liable to FBT.
However, if the exclusive training centre is hired by the employer on a temporary basis, such training centre cannot be construed as an office or a factory within the meaning of the exclusion provided in sub-clause (i) of clause (b) of sub -section (2) of section 115WB. Therefore, any expenditure on food or beverages provided by the employer at such training centre to the employees is liable to FBT.
More from rediff