The Finance Act, 2005, introduced a new tax called ‘Income-tax on fringe benefits' as an additional income tax and was applicable from April 1, 2005.
Fringe Benefit tax is levied on the employer who has provided or deemed fringe benefits to his employees during the previous year.
The rate is applicable at 30 per cent of the value of fringe benefits computed in the manner prescribed under the Section 115WC.
What is included in Fringe Benefits?
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.
Fringe Benefits shall be deemed to have been provided if the employer has incurred any expenses or made any payments for various purposes namely;
- Provision of hospitality
- Sales promotion including publicity, employees welfare, conveyance, tour & travel, use of hotel, boarding & lodging etc.
What are the benefits which are not included?
Some changes relating to income tax on ‘fringe benefits' were modified by the Finance Act, 2006.
Expenditure incurred on the 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.
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.
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 benefits 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.
These include payments through non-transferable electronic meal cards, provision of crèche facility, organizing sports events or 73 sponsoring a sportsman being an employee.