FBT is an additional expenditure tax in respect of the value of fringe benefits provided or deemed to have been provided by an employer to his employees.
There were no major changes on the fringe benefit tax (FBT) front in this budget. FBT is an additional expenditure tax (disguised as income-tax) in respect of the value of fringe benefits provided or deemed to have been provided by an employer to his employees.
This tax is essentially paid by the employer and works out to 6.798% of the fringe benefits, in case of most fringe benefits.
Let's try and understand this through an example of two individuals drawing the same salary of Rs 74,250 per month (See table 1 on the right hand side). The first person's salary the way it is structured does not have any fringe benefits.
Accordingly after taking the deductions available his taxable income comes to Rs 6,65,000 per annum. On this he pays a tax of Rs 152,955. So his monthly income works out to be Rs 52,254 per month.
The second individual's salary has certain fringe benefits like company car's expenses, driver's expenses, entertainment etc, built in to his salary. This part of the salary comes to Rs 15,745 per month or Rs 188,940 per annum.
This does not come as a part of the gross taxable income and is taxed separately as fringe benefit tax. His taxable income comes to Rs 4,85,000 per annum. On this he pays a tax of Rs 97,335 in the year. On the fringe benefit amount of Rs 1,88,940, the
company has to pay a tax of 6.798%.
This essentially works out to Rs 1069 per month or Rs 12,828 per annum. Hence the total tax outflow for this indivuidal (income tax + FBT) works out to Rs 1,10,163 per annum. So his take home is at a higher amount of Rs 56,565 per month.
The question that will arise here is, “Why would the company want to pay FBT and let the employee benefit?” The way to get around this problem is to have the FBT that the company pays as a part of the cost to company salary, that the employee negotiates at the time of joining.
So even though the company may be paying the FBT to the Centre, it's the employee that is bearing it. And even after bearing this tax, as we have seen above, the employee gains by paying a lesser tax.
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