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Rediff.com  » Business » FAQs on fringe benefit tax

FAQs on fringe benefit tax

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August 31, 2005 07:15 IST

51. Whether expenditure incurred during in-house employee training would be considered as conference expense and liable to FBT?

The FBT is not envisaged for levy on the expenditure incurred for the purposes of imparting in-house training to employees.

However, FBT would be payable on any expenditure incurred towards food and beverage, tour and travel, and lodging and boarding in connection with such in-house training of employees.

52. At times, employees order for food and beverages in the office premises while working after office hours. The employer reimburses the cost of such food and beverages to the employee. Would such reimbursement be considered as 'any expenditure on, or payment for food or beverages provided by the employer to his employees in office or factory as per the exceptions provided by section 115WB (2)(B) (i) so as to be excluded from 'fringe benefits'? In other words, for the exclusion to operate is it necessary that the employer has to pay to the supplier directly and not reimburse the employee?

The provisions of sub-clause (i) of clause (B) of sub -section (2) of section 115WB of the Income-tax Act provide for exemption from FBT only in respect of expenditure incurred on food or beverages procured by the employer for providing to his employees in an office or factory.

Therefore, if an employer reimburses to the employee expenditure on food or beverages consumed by the employee in the office, such reimbursement would not fall within the scope of sub-clause (i) of clause (B) of subsection (2) of section 115WB of the Income-tax Act and will be liable to FBT.

53. Whether expenditure on food vouchers would be liable to FBT?

In terms of the provisions of sub -clause (ii) of clause (B) of sub-section (2) of section 115WB, any expenditure on or payment made through paid vouchers which are not transferable and used only at eating joints or outlets, is not liable to FBT.

54. Whether expenditure incurred for attending training programmes organized by trade bodies or institutions is liable to FBT?

A training programme entails congregation of a number of persons for discussion or exchange of views. Therefore, expenditure incurred for attending training programmes organized by trade bodies or institutions or any other agency falls within the scope of the provisions relating to expenditure incurred for the purposes of conference contained in clause (C) of sub -section (2) of section 115WB and will be liable to FBT.

55. Whether expenditure in the nature of fee for participation by the employees in any conference is liable to FBT?

In terms of the provisions of clause (C) of sub-section (2) of section 115WB, expenditure in the nature of fee for participation by the employees in any conference is not liable to FBT. However, if the participation fee includes any expenditure of the nature referred to in clauses (A), (B), and (D) to (P) of sub-section (2) of section 115WB, such expenditure will be liable to FBT.

56. Whether FBT will apply to the expenditure incurred for the purposes of conferences of the agents or dealers or development advisors?

In terms of the provisions of clause (C) of sub-section (2) of section 115WB, any expenditure incurred for the purposes of conference is liable to FBT irrespective of whether the conference is of agents or dealers or development advisors or any other persons.

Therefore, the expenditure incurred for the purposes of agents or dealers or development advisors is liable to FBT.

57. Whether payment, for use of brand' or to a 'brand ambassador' or for 'celebrity endorsement' would be expenditure on sales promotion and publicity and therefore liable to FBT?

All expenditure incurred for the purposes of sales promotion and publicity would fall within the scope of clause (D) of sub-section (2) of section 115WB other than any expenditure on advertisement referred to in clauses (i) to (vi) of the proviso to the said clause.

Since the expenditure on brand' or brand ambassador' or 'celebrity endorsement' does not fall within the scope of the proviso to clause (D) of sub -section (2) of section 115WB, such expenditure is liable to FBT.

58. Whether "sales promotion expenses" includes brokerage and selling commission in relation to sales paid to direct selling agents/direct marketing agents and, if so, whether FBT is payable thereon?

Brokerage and selling commission paid for selling goods are in the nature of ordinary selling expenses. Therefore, the expenditure on brokerage and selling commission is not expenditure for the purposes of 'sales promotion including publicity within the meaning of clause (D) of sub-section (2) of section 115WB.

Accordingly, FBT is not payable on brokerage and selling commission paid for selling goods.

59. Whether FBT is leviable on expenditure relating to salesmen appointed by distributors for company's products reimbursed through credit notes?

If the salesmen are the employees of the distributors, reimbursement (by whatever means) of expenses relating to such salesman, is a component of commission/brokerage/service charges/margin to distributors and therefore in the nature of ordinary selling expenses.

Such selling expenses do not fall within the meaning of 'sales promotion including publicity' referred to in clause (D) of sub-section (2) of section 115WB and, therefore, not liable to FBT.

60. Whether 'sales promotion' includes sales discount or rebates to wholesalers or customers or bonus points given to credit card customers and, if so, whether FBT is payable thereon?

Sales discount or rebates allowed to wholesale dealers or customers from the listed retail price merely represent lesser realization of the sale price itself. The bonus points given to credit card customers are also in the nature of deferred sale discount.

Therefore, discounts or rebates or bonus points allowed to customers or wholesale dealers are in the nature of selling expenses and outside the scope of the provisions of clause (D) of sub -section (2) of section 115WB of the Income-tax Act. Accordingly, such discounts or rebates are not liable to FBT.

61. Whether expenditure on incentives given to distributors for meeting quantity targets (including free goods for achieving certain sales target like, 100 free televisions for achieving a target sale of 10,000 televisions and cash incentives adjustable against future supplies) is liable to FBT?

Incentives given to distributors for meeting sales targets (including free goods given as incentive to distributors for achieving certain sales and cash incentives adjustable against future supplies) are in the nature of performance-based commission. Such performance-based commission is in the nature of ordinary selling cost.

Therefore, expenditure incurred for the purpose of providing incentives given to distributors for meeting sales targets (including free goods for achieving certain sales target and cash incentives adjustable against future supplies) do not fall within the scope of clause (D) of subsection (2) of section 115WB and, therefore, not liable to FBT.

62. Whether product marketing research expenses will be covered under sales promotion?

The expenditure incurred on product marketing research is in the nature of expenditure for the purposes of testing the efficacy of the product. Therefore, such expenditure is outside the scope of the provisions of clause (D) of sub -section (2) of section 115WB relating to sales promotion.

Accordingly, expenditure incurred on product-marketing research is not liable to FBT.

For example, if an employer undertakes a product marketing research through a separate marketing agency, the employer is not liable to FBT on payment (including reimbursement) to the marketing agency.

However, if the employer carries out the research through its own employees, the expenditure falling under any of the clauses (A) to (P) of sub-section (2) of section 115WB will be liable to FBT in view of the legal maxim that a specific provision in law will override the general provisions of the law. This will be so, notwithstanding the expenditure is for the ultimate purpose of conducting product-marketing research.

63. Whether expenditure in the nature of call centre charges for canvassing sales (cold calls) or carrying out post-sales activities is liable to FBT?

Any expenditure in the nature of call centre charges for canvassing sales (cold calls) and carrying out post-sale activities is in the nature of selling cost and therefore, outside the scope of the provisions of clause (D) of sub-section (2) of section 115WB relating to sales promotion. Accordingly, such expenditure is not liable to FBT.

64. Whether expenditure on distribution of free medical or other product samples is liable to FBT?

The term 'sales promotion and publicity has not been defined in the Income-tax Act and hence, it should be given its natural meaning. The term is of wide import. Following Hon'ble Supreme Court's decision in the case of Eskayef Ltd. Etc. (245 ITR 116), any expenditure on free medical samples distributed to doctors is in the nature of sales promotion. Therefore, it would be liable to FBT.

Similarly, any expenditure on free samples of other products distributed to trade or consumers would also be liable to FBT.

65. Whether expenditure on making ad-film is liable to FBT?

An ad film is a medium for advertisement and therefore falls within the scope of clause (i) of the proviso to clause (D) of sub-section (2) of section 115WB. Therefore, any expenditure on making an ad -film is not liable to FBT.

66. Whether expenditure on free offers (with products) such as freebies like tattoos, cricket cards or similar products, to trade or consumers (excluding employees) is liable to FBT? Further, whether expenditure incurred on the artwork or for payment of royalty charges in respect of such freebies is liable to FBT?

Any expenditure (including expenditure on artwork and royalty charges) on free offers (with products) such as freebies like tattoos, cricket cards or similar products, to trade or consumers (excluding employees) is for the purposes of sales promotion and, publicity and accordingly, liable to FBT.

67. Whether expenditure incurred for hotel stay, air ticket charges, etc. in relation to customer/ clients is liable to FBT?

Any expenditure incurred for the purposes of lodging and boarding or travel of customer/ clients could be classified either under the provisions of clause (D) or clause (G) of sub-section (2) of section 115WB and, accordingly, liable to FBT.

68. Whether FBT is payable on payment by the employer for Group Personal Accident/Workman Compensation Insurance?

If the expenditure incurred or payment made by the employer for the purpose of Group Personal Accident/ Workman Compensation Insurance is a statutory obligation in terms of the provisions of the Explanation to clause (E) of sub-section (2) of section 115WB, such expenditure will not be liable to FBT.

However, if such expenditure is not a statutory obligation, the same would be liable to FBT.

69. Whether medical reimbursement upto Rs. 15,000 (exempt in the hands of the employees) and medical reimbursement over Rs. 15,000 (taxed as perquisite in the hands of the employee) is liable to FBT?

At present, if any sum is paid by the employer for expenditure actually incurred by the employee for medical treatment in an unapproved hospital and it exceeds Rs 15,000 during the year, such sum is 'salary' as defined in clause (1) of section 17 of the Income-tax Act and liable to income-tax in the hands of the employee.

There is no change in this position. Since such sum is taxable in the hands of the employee, the same is not liable to FBT.

However, if any sum is paid by the employer for expenditure actually incurred by the employee for medical treatment in an unapproved hospital and it does not exceed Rs 15,000 during the year, such sum does not fall within the meaning of 'salary as defined in clause (1) of section 17 of the Income-tax Act and not liable to income-tax in the hands of the employee.

There is no change in this position. Since such sum is not taxable in the hands of the employee, the same is liable to FBT.

70. Whether expenditure by the employer on Group Health Insurance or Group Medical Insurance or Group Life Insurance is liable to FBT?

Expenditure by the employer on Group Health Insurance or Group Medical Insurance or Group Life Insurance is for the purposes of employee welfare and, therefore, falls within the scope of clause (E) of sub-section (2) of section 115WB of the Income-tax Act. Accordingly, such expenditure is liable to FBT. However, if such expenditure is a statutory obligation, the same would not be liable to FBT.

71. Whether expenditure incurred at a hospital/dispensary, not maintained by the employer, for injuries incurred during the course of employment, is liable to FBT?

In terms of the Explanation to clause (E) of sub-section (2) of section 115WB, any expenditure incurred or payment made to provide first aid facilities in a hospital or dispensary run by the employer is not considered as expenditure for employees' welfare.

Therefore, if the expenditure is incurred for treatment of injuries suffered in the course of performance of duties but the treatment is at a hospital/dispensary not maintained by the employer, such expenditure is liable to FBT. However, if such expenditure is pursuant to a statutory obligation, it will not be liable to FBT.

72. Whether subsidy provided to a school not meant exclusively for employees' children is liable to FBT?

Any subsidy provided to a school not meant exclusively for employees' children is in the nature of expenditure incurred for the proximate purposes of promoting employee welfare. Therefore, such subsidy falls within the scope of clause (E) of sub-section (2) of section 115WB relating to employees' welfare and accordingly liable to FBT.

73. Whether expenditure incurred on provision and maintenance of facilities like garden, site cleaning, light decoration, school, library, mess, television, cable connection etc. in employees' colonies is liable to FBT?

Any expenditure incurred for the provision of facilities like garden, site cleaning, light decoration school, library, mess, television, cable connection etc in employees' colonies is for the purposes of promoting employee welfare.

Therefore, such expenditure falls within the scope of clause (E) of sub-section (2) of section 115WB relating to employees' welfare and accordingly liable to FBT.

74. Whether FBT is payable on expenditure incurred on providing safety shoes or uniforms or equipments to the employees or for the purposes of reimbursement of washing charges?

Any expenditure incurred for meeting the employer's statutory obligations under the Employment Standing Orders Act, 1948, fall within the scope of the exclusion in the Explanation to clause (E) of sub-section (2) of section 115WB.

Therefore, expenditure incurred on providing safety shoes or uniform or equipment to the employees or incurred for the purposes of reimbursement of washing charges, is exempt from FBT to the extent such expenditure is incurred to meet such statutory obligation.

75. Whether reimbursement of expenditure on books and periodicals to employees is liable to FBT?

Any reimbursement of expenditure on books and periodicals to employees is in the nature of expenditure for the purposes of employee welfare and, accordingly, falls within the scope of clause (E) of sub-section (2) of section 115WB. Hence, such reimbursement is liable to FBT.

FAQs on fringe benefit tax: Part IV

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