With FBT out, in-hand salaries will go up

If the measly increase in the income-tax exemption limit has left you disappointed, you have the removal of the fringe benefit tax (FBT) to cheer.

Human resource experts say the move will help employers save on taxes after the abolishment of FBT and lead them to offer cash-heavy salary packages. So, allowances such as conveyance, telephone, fuel, uniform, entertainment, employee stock options (Esops) etc, which had vanished from salary packages, should make a grand comeback.

Sandeep Chaudhary, practice leader - analytics consulting (India) at Hewitt Associates, says, the abolition of FBT means savings for organisations and they would be passing it on to the employees. “Individuals will save where the employers entirely or partially pass-on the cost to the employee. Those who were paying FBT from their pockets will save.”

“Conveyance, entertainment and (intra) city travel allowance were being used by employers earlier, when there was no FBT. Now, we are back to square one. Employers would increase the amount provided under fringe benefits in various forms,” says Sanjay Kelapure, director at Mumbai-based Corporate Pride Consultant.
Even Esops, which are nothing but shares of a listed company offered to employees at a lower cost in terms of compensation, would now be used more often as an employee-retention strategy by companies.

“Esops had lost value because of the fall in the stock markets and then you had to pay an FBT on that. So, high performers saw no differentiation. Now Esops will be reintroduced in a buoyant manner,” says Delhi-based HR consultant Yogesh Saigal.

A back-of-the-envelope calculation by Saigal indicates that there might be a 10-15% increase in the in-hand salary. “But it all depends on how the companies will change the structure,” says Saigal. “Somebody who earns Rs 50,000 a month and pays Rs 5,000 on fuel can get a reimbursement on it and save tax of up to Rs 1,500-1,800 a month. More reimbursement means you can move to a lower tax bracket,” he adds.

And companies will not wait for the next financial year, to make these changes.

“I don’t see why companies should not bring about mid-year changes in packages. They are not paying anything extra. If one or two companies change the structure, people will move to them, so companies will have to change it,” says Saigal.

If not all, at least some employees might benefit. “Most organisations are going to look at salary increase, if not for all, at least for some employees,” says Chaudhary of Hewitt.