FBT

Scope of Fringe Benefit Tax (FBT) and the effective tax rate for financial year 2008-09

(The figures in brackets in the table below represent the question number in Circular 8/2005, which has been answered by CBDT)

S. No. (a)	Nature of expense (b)	Illustrative list of expenses included (c)	Illustrative list of expenses excluded (d)	Value of Fringe Benefit (e)	Effective FBT rate (f)=(e)*33.99%[1]
1	Superannuation fund		- up to rupees one lakh per employee - approved gratuity or provident fund (38)	100%	33.99%
2	Entertainment	- exhibition, performance, amusement, game or sport, amusement and gratification (49)		20%	6.798%
3	Provision of hospitality	- reimbursement of expenses to employees for food or beverages availed by employee in office or factory (52)	- food or beverages provided by employer to employees in office or factory (52) - payment through paid vouchers usable only at eating joints - non transferable prepaid electronic meal cards usable only at eating joints (Refer Note 6)	20%	6.798%
4	Conference (including in-house training (51), training programmes organized by trade bodies or institutions (54), conferences of the agents or dealers or development advisors (56))	- conveyance, tour and travel (including foreign travel), on hotel, or boarding and lodging in connection with any conference	- participation fee paid for the employees, provided it does not include any payment towards entertainment, provision of hospitality, sales promotion and scholarships (55)	20%	6.798%
5	Sales promotion including publicity	- expenditure on brand	- refer Annexure A	20%	6.798%
6	Employees’ Welfare	- annual reimbursement for medical expenses up to Rs 15,000 (69) - books and periodicals (75) - prizes / rewards for achievements (76) - education / transport to children of employees (72, 77) - group personal accident / workman compensation insurance, if not a statutory obligation (68)	- annual reimbursement for medical expenses exceeding Rs 15,000 (69) - fulfilling any statutory obligation - mitigating occupational hazards - provision of first aid facilities in hospital / dispensary run by the employer (71) - lease rent for lease of accommodation for staff (48) Additions vis-a- vis earlier year (Refer Note 6): - to provide crèche facility for employees’ children, - to sponsor a sportsman being an employee - to organise sports events for employees	20%	6.798%
7	Conveyance[2]	- reimbursement of car expenses on the basis of bills submitted and driver’s salary (78) - rent for hiring or leasing of motor-cars (82)	- free or subsidized transport for journeys to employees from their residence to the place of work or such place of work to the place of residence (104)	20%	6.798%
8	Use of hotel, boarding and lodging facilities		- expenditure incurred by a company (say EYPL) for executing VW’s assignment and VW reimburses EYPL for such ‘out of pocket’ expenses (12)	20%	6.798%
9	Repair, running (including fuel), maintenance of motor cars and the amount of depreciation[3] thereon			20%	6.798%
10	Use of telephone (including mobile phone)	- telephone installed in the office in name of the company, mobile phones, (90)	- leased telephone lines	20%	6.798%
11	Maintenance of any accommodation in the nature of guest house	No FBT shall be payable under this head (Refer Note 6)
12	Festival celebrations	- meeting / get-togethers of employees and their family members on the occasion of any festival (eg Christmas new year)	- celebration of Independence Day and Republic Day (95)	20% (Refer Note 6)	6.798%
13	Use of health club and similar facilities	- entrance or membership fee of a club or health club or similar facility (96)		50%	16.995%
14	Use of any other club facilities	- entrance or membership fee of a club or health club or similar facility (96)		50%	16.995%
15	Gifts	- gifts under trade schemes or for promotion of company’s products to distributors / retailers (97) - a gift to a customer (98) - gift in cash / kind (100)		50%	16.995%
16	Scholarships	- education of employees sent to an educational institution		50%	16.995%
17	Tour and travel (including foreign travel) [4]	- Expenses incurred on outstation travel	- expenditure incurred by a company (say EYPL) for executing VW’s assignment and VW reimburses EYPL for such ‘out of pocket’ expenses (12) - expense incurred by a professional like a lawyer or auditor and reimbursed as out-of-pocket expense (13)	5%	1.6995%

General Notes:

1. This chart provides an illustrative list of expenses which are covered under the provisions of FBT under the Income tax Act, 1961 and Circular 8/2005 issued by the Central Board of Direct Taxes (CBDT). In certain cases, the CBDT view (which requires FBT to be paid on certain expenses) may not be the correct view and the assessee is entitled to consider a view which is contrary to the CBDT view. Hence, litigation cannot be ruled out.
2. The expenses liable to FBT are subject to the following general inclusions:
1. Reimbursement of expenses to employees, even if incurred purely for business purposes (9), unless there is a specific exclusion for such reimbursement (52)
2. Payments for official or business expenses (15)
3. Expenses incurred prior to commencement of business[5] (16)
4. Expenditure capitalized (19)
3. The list of expenses liable to FBT are subject to the following general exclusions:
1. Advance payments of any expense (18)
2. Amount of any expense recovered from the employee (33)
3. Expenses disallowed under the provisions of the Income tax Act, 1961 (35, 36)
4. Allowances paid to employees, which are taxable as Salaries (47)
4. In case of a payment made under a cost sharing arrangement between group companies, each company is liable to bear FBT on its share of the expenditure, irrespective of the fact that payment is made by one of the group companies. (34)
5. FBT liability is required to be estimated and discharged by way of advance FBT in four instalments on June 15, September, December 15, and March 15 in the same proportion as required in respect of advance income tax payments. In case of shortfall in payment of advance FBT, interest would be payable @ 12 per cent p.a. (to be computed in the prescribed manner).
6. These are the amendments proposed in Finance Bill 2008 wef 1 April 2009 (ie in relation to the assessment year 2009-10 and subsequent assessment years).

Annexure A

List of items excluded from the purview of “sales promotion” for the purpose of FBT:

1. Advertisement in any print or electronic media or transport system
2. Holding of, or the participation in, any press conference or business convention, fair or exhibition;
3. Sponsorship of any sports event or any other event organised by any government agency or trade association or body..
4. Publication in any print or electronic media of any notice required to be published by or under any law or by an order of a court of tribunal:
5. Advertisement by way of signs, art work, painting, banners, awnings, direct mail, electric spectaculars, kiosks, hoardings, bill boards or by way of such other medium of advertisement; and
6. Payment to any advertising agency for the purposes specified above
7. Payment to any person of repute for promoting the sale of goods or services of the business of the employer.
8. Brokerage and selling commission in relation to sales paid to direct selling agents / direct marketing agents (58)
9. Sales discount or rebates to customers (60)
10. Incentives given for meeting quantity targets (61)
11. Product marketing research expenses. (62)
12. Gifts to customers. (98)
13. Expenditure on display of products.
14. Expenditure on distribution of samples, free of cost or at concessional rate.

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[1] FBT is payable at the rate of 30 per cent of the value of the Fringe benefit plus applicable surcharge and education cess. Surcharge at the rate of 10 per cent is payable in case income of the Company is greater than Rs 10,000,000

[2] Depending upon the facts, expenses may be classified under conveyance (effective tax rate 6.798%) or under tour and travel (effective tax rate 1.6995%). Generally speaking, reimbursement of out of Pune travel expense would be classified under ‘Tour and travel (including foreign travel). Insofar as hotel expenses on travel are concerned, there is a view that such expenses should be covered under the head ‘Use of hotel, boarding, and lodging facilities.

[3] Depreciation as per the Income Tax Act (and not Companies Act) to be taken basis for determining the quantum of advance FBT

[4] Depending upon the facts, expenses may be classified under conveyance (effective tax rate 6.798%) or under tour and travel (effective tax rate 1.6995%). Generally speaking, reimbursement of out of Mumbai travel expense would be classified under ‘Tour and travel (including foreign travel). Insofar as hotel expenses on travel are concerned, there is a view that such expenses should be covered under the head ‘Use of hotel, boarding, and lodging facilities.

[5] Fringe Benefit shall be deemed to have been provided if the employer has, in the course of his business (including any activity whether or not such activity is carried on with the object of deriving income, profit or gains) incurred any expense for the purpose of expenses covered under clauses A to Q of section 115WB(2) of the Income tax Act. A view also exist that FBT is payable only post commencement of business and not during the pre-set up period where such Fringe Benefit would not be provided by an employer during the previous year in the course of his business. However, advance tax may be paid based on the conservative view that FBT is payable even before commencement of business given the contrary Circular issued by the CBDT (16). The alternative aggressive position could be explored for VW India in its FBT return of income.