Before talking about a tax on fringe benefits, let us first explore what fringe benefits really are. Quite simply put, a fringe benefit can be anything that is provided by an employer to the employee which is outside the purview of the employee’s salary. This includes things like reimbursements, tickets, company vehicles, contributions to superannuation funds, etc. Basically, if the employer spends anything on an employee, including costs of entertainment, hospitality and shares allotted free of cost or at lower rates, it is labelled a fringe benefit.
What is Fringe Benefit Tax?
A fringe benefit tax is basically a tax that is levied on the fringe benefits that are provided to employees and was introduced in FY 2005-06. It was a tax that was to be paid by the employers to the government for having provided those benefits. In the year 2009, the Finance Act, after much debate, finally abolished the fringe benefit tax in India and the abolishment became effective from FY 2010-11.
Fringe Benefit Tax Rate:
When it was in force, the tax rate was set at a flat 30% of the value of benefit that the company had provided to the employee.
Fringe Benefit Tax Exemptions:
While it was in effect, there were certain exemptions available under this tax. These included things like:
- Exemption on amounts paid by a company to a professional to promote said company and the goods/services they sold.
- Expenses borne by an employer to provide employees with transport to the office and back home.
- If an employer made a contribution to a superannuation fund for an employee, then an amount of up to Rs. 1 lakh per employee was exempted from tax.
- Another exemption included expenses that an employer might incur when it came to providing employees with travel solutions or entertainment in the form of games and outings organised.
Fringe Benefit Tax Today:
What was a boom from an employer became a bane for the employee. Once the FBT was abolished, it came back in the form which said that the value of the benefit will be added to the employee’s income. It will then be recovered from the employee as part of the income tax based on the slab that they came under.