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Taxable Income

What is included in Fringe Benefits and how are they taxed?

Introduction:

The Finance Act 2005 has introduced a new tax called Income-tax on fringe benefits w.e.f. 01.04.2006. This shall be in the form of additional income tax levied on fringe benefits provided or deemed to have been provided by an employer to his employees during the previous year.

Rate of Tax :-

The tax on fringe benefits shall be levied at the rate of 30% on the value of fringe benefits provided.

Liability to Pay: -

The liability to pay this tax is to be borne by the employer including
i) a company
ii) a firm
iii) an association of persons or body of individuals excluding any fund or trust or institution eligible for exemption u/s 10(23C) or 12AA.
iv) a local authority
v) an artificial juridical person

What is included in 'Fringe Benifits' :-

Fringe benefits have been defined as including any consideration for employment provided by way of

a) any privilege, service, facility or amenity provided by an employer directly or indirectly including reimbursements.

b) any free or concessional ticket provided by the employer for private journeys of his employees or their family members.

c) any contribution by the employer to an approved superannuation fund for employees.

d) any specified security or sweat equity shares allotted/ transferred, directly or indirectly by the employers free of cost or at concessional rate to his employees. The detailed provisions in respect of this are included in Chapter XII H of the I.T. Act.

Further, fringe benefits shall be deemed to have been provided if the employer has incurred any expenses or made any payments for various purposes namely, entertainment, provision of hospitality, conference, sales promotion including publicity, employees welfare, conveyance, tour & travel, use of hotel, boarding & lodging etc.

Various provisions relating to income tax on fringe benefits have been modified by the Finance Act, 2006. Exceptions in respect of certain expenditures have been introduced including expenditure incurred on distribution of free/concessional samples and payments to any person of repute for promoting the sale of goods or services of the business of the employer. Similarly, it has been proposed that expenditure incurred on providing free or subsidized transport or any such allowance provided by the employer to his employees for journeys from residence to the place of work shall not be part of fringe benefits. Another significant amendment is regarding the contribution by an employer to an approved superannuation fund to the extent of Rs.1 lakh per employee which shall not be liable to fringe benefit tax. Further, in the case of some other expenses incurred such as expenses incurred on tour and travel, lower rates for valuation of fringe benefits @ 5% have been provided for. The Finance Act 2008 has introduced further exemption in respect of certain expenditures from the purview of Fringe Benefit Tax. These include payments through non-transferable electronic meal cards, provision of crche facility, organizing sports events or sponsoring a sportsman being an employee. These provisions shall come into effect from A.Y. 2009-10 onwards.

The Finance act, 2009 has withdrawn the Fringe Benefit Tax. Thus, the FBT stands abolished w.e.f. A.Y. 2010-11 and now such perquisites are taxable in hands of employees.

Source: Income Tax Department

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