1. Fringe Benefit Tax November 2008slide 1 Introduction Rationale for FBT ► The Finance Minister stated the following while introducing the FBT legislation: “Therefore, by the presumptive tax method what we are trying to do is to tax that part which is clearly a perquisite, clearly a benefit but which is going untaxed both in the hands of the employer and the employee…..” ► FBT levy is necessary to ensure that fringe benefit taxation does not violate horizontal and vertical equity. ► This levy would bring to tax benefits that are collectively enjoyed and are not capable of being attributed to an individual employee.

2. Fringe Benefit Tax November 2008slide 2 Introduction Synopsis of the provisions ► FBT is an “additional” income-tax payable by an ‘employer’ ► FBT is a tax payable with effect from 1 April 2005, on ► Fringe Benefits, and ► Deemed Fringe Benefits ► Fringe benefits are ‘deemed’ to have been provided to an employee in case an employer incurs specified expenditure ► Perquisites on which tax is paid or payable by an employee are excluded from the ambit of FBT ► FBT is leviable @ 30% (plus surcharge and education cess) on ‘value’ as prescribed

3. Fringe Benefit Tax November 2008slide 3 Introduction ► Value prescribed is either 5%/20% / 50% / 100% of the total expenditure Synopsis of the provisions ► FBT is applicable to ► Company ► Firm ► AOP or BOI ► Local authority ► Artificial juridical persons

4. Fringe Benefit Tax November 2008slide 4 Introduction ► FBT not applicable to ► An individual (whether or not books of accounts are audited) ► A Hindu Undivided Family (whether or not books of accounts are audited) ► A person whose income is eligible for exemption under section 10(23C) or registered under section 12AA ► Central and State Governments ► A political party ► FBT is not a deductible business expenditure

5. Fringe Benefit Tax November 2008slide 5 Fringe benefits defined Means any consideration for employment provided by way of - Nature of expenses / paymentsFringe Benefit Value Any privilege, service, facility, or amenity, directly or indirectly, provided by an employer, by way of reimbursement or otherwise, to his employees (including former employee or employees); Not provided for specifically Any free or concessional ticket provided by the employer for private journeys of his employees or their family members; and Market price of the ticket (Less) Any amount recovered Any contribution by the employer to an approved superannuation fund for employees Actual amount of contribution in excess of Rs 100,000 per employee Any specified securities or sweat equity shares allotted or transferred directly or indirectly to the employees free of cost or at concessional rate (including former employee or employees) The fair market value (of the specified security or sweat equity shares) on the date on which the option vests (Less) Any amount recovered

6. Fringe Benefit Tax November 2008slide 6 Deemed Fringe Benefits Nature of expenditurePresumptive base Entertainment20% Hospitality 20% Conference20% Sales promotion and publicity (excluding advertisement)20% Employees’ welfare20% Conveyance 20% Hotel, boarding and lodging facilities 20% Repair, running, maintenance and depreciation of motor cars 20% Repair, running, maintenance and depreciation of aircrafts20% Use of telephone (other than leased lines)20% Festival celebrations20% Use of health club and similar facilities50% Use of club facilities50% Gifts50% Scholarships50% Tour & travel (including foreign travel)5%

7. Fringe Benefit Tax November 2008slide 7 Exclusions from Deemed Fringe Benefits ExclusionsExpenditure head F&B in office / factory / training centreHospitality Non-transferable food vouchers / pre-paid electronic meal cardHospitality Fee for participation, In-house trainingConference Payments to meet statutory obligations / to mitigate occupational hazardsEmployees’ welfare Expenditure to sponsor sportsperson employee, to organise sports event for employees, providing creche facility Employees’ welfare Expenditure to provide first aid facilities / for injuries during work – provided at employer run hospital / dispensary Employees’ welfare LTC, Reimbursement of consultant’s expenditureConveyance

8. Fringe Benefit Tax November 2008slide 8 FBT Amendments ► No FBT on non transferable prepaid electronic meal cards usable only at eating joints ► No FBT on the following expenses covered under staff welfare: ► To provide crèche facility for employees’ children, ► to sponsor a sportsman being an employee ► to organise sports events for employees ► No FBT on any expenditure for maintenance of guest house ► Value of Fringe benefits for expenditure on festival celebrations reduced from 50% to 20%

9. THANK YOU