Page 245 - DCOM508_CORPORATE_TAX_PLANNING

Corporate Tax Planning

Notes A benefit provided on behalf of an employee is taxable to an employee even if the benefi t is

received by someone other than the employee, such as a spouse or a child. If an employee’s
wages are not normally subject to social security or Medicare taxes (for example, because the
employee is covered by a qualifying public retirement system), otherwise taxable fringe benefi ts
are not be subject to social security or Medicare taxes.

10.3.1 Reason for Introducing Fringe Benefi t Tax

Attribution of the personal benefi t poses problems, or for some reasons, it is not feasible to tax

the benefits in the hands of the employee, thereby, it was proposed to levy a separate tax known

as the fringe benefit tax on the employer on the value of such benefits provided or deemed to

have been provided to the employees. For this purpose, a new Chapter XII-H is proposed to be
inserted in the Income-tax Act containing sections 115W to 115WL, which provides for the levy
of additional income tax on fringe benefi ts.
The chapter is divided into three parts. Part A contains the meaning of certain expressions used,

Part B enumerates the basis of charge, and Part C delineates the procedures for filing of return in

respect of fringe benefits, assessment and the payment of tax thereon.
Perquisites which can be directly attributed to the employees will continue to be taxed in their
hands in accordance with the existing provisions of section 17(2) of the Income-tax Act and
subject to the method of valuation outlined in rule 3 of the Income-tax Rules.

10.3.2 Who pays Fringe Benefi t Tax?

Under the proposed provisions, fringe benefit tax is payable by an employer who is either an
individual or a Hindu undivided family engaged in a business or profession; a company; a fi rm;
an association of persons or a body of individuals; a local authority; a sole trader, or an artifi cial
juridical person.

The tax is payable in respect of the value of fringe benefits provided or deemed to have been

provided by an employer to his employees during the previous year.
The value of fringe benefits so calculated, is subject to additional income tax in respect of fringe

benefits at the rate of thirty per cent, as provided in section 115WA.

The fringe benefit tax is payable by the employer even where he is not liable to pay income-tax on
his total income computed in accordance with the other provisions of this Act.
The benefit does not have to be provided by the employer directly for him to attract fringe benefi t

tax. Fringe benefit tax may still be applied if the benefit is provided by a third party or an associate

of the employer or by under an arrangement with the employer.
!
Caution FBT applies to non-resident employees of the Indian company.

Indian company is liable to pay for non-resident. As the non-resident employees are none
other than the employees who are deputed by the Indian company to go to foreign country.
The deputed employees becomes non-resident but still they continue to be the employees of
Indian company, therefore, non-resident employees comes within the ambit of employees
for whom Indian company is liable to pay tax.

This provision is introduced as a presumption tax so as not to avoid incentive accounting
practices. There is a possibility of shift of classification of expenditure from one heads of

account to another. Therefore, in order to avoid the leakage of tax and evasion of tax this
FBT provision has come into play.

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