Page 248 - DCOM508_CORPORATE_TAX_PLANNING

Unit 10: Tax Consideration in Specific Managerial Decisions

is always recommended before plunging in. Nevertheless, the business environment in regard to Notes

providing fringe benefits is getting more and more commonplace. So it is an area in which you,
the business owner, should at least have a rough idea of the options and pitfalls.

Did u know?

1. Prescribed interest rates: These are the FBT prescribed interest rates, which are used
to determine the fringe benefit value of low-interest loans provided to employees.

2. Liable low-interest loans: Learn about the FBT liability for current account debit
balances, expense accounts, and loans to life insurance policyholders.
3. Exempt low-interest loans: A low-interest loan to employees may not be subject to
fringe benefit tax if the loan credit is the same as normal commercial credit or if it is

an employee share-purchase scheme. Learn about these circumstances.
4. Record keeping for low-interest loans: In most cases, your existing records will
provide enough information to work out the value of low-interest loans for FBT
purposes. See if you need to keep any extra records regarding accrued interest, the
daily balance of the loans, and non-reviewable interest rates.
5. FBT applied to low-interest loans: FBT is calculated on loans by comparing the
interest on the loan with the interest calculated using the prescribed rate.

10.3.4 Explanation of How FBT Will Operate

Finance Ministry officials indicated that organisations with very few employees could be

exempted from the tax. This is based on the assumption that small employers do not spend large

amounts on fringe benefits. The ministry will also examine combining the tax return for fringe

benefits with the income tax return to avoid the need for filing separate forms
(a) Fringe benefit tax on use of cars, etc.: The tax on perquisites like maintenance of a car, club

membership, free meals, credit cards and tours and travel, which were earlier taxed in the
hands of the employees, has been withdrawn and the employer will now be liable to pay
tax on this. Whereby, it will not give any relief to the employees.
Example: In the case of the perquisite value of a car, employees are taxed at a rate ranging
between ` 1,100 (for small cars) and ` 1,700 a month (for bigger vehicles) in addition to ` 300 or
500 for a driver provided by the company.
(b) It will badly hit the corporates in India: Reports suggest that the fringe benefi ts tax will
result the Indian incorporations to an additional expenditure of about ` 25,000 crore.
(c) Advertising agencies will be hit by fringe benefi t tax: The 30 per cent fringe benefit tax will

hurt advertising agencies badly as in this sector about 10% o 12% of an employee’s salary
comes in the form of perks.

Did u know? In the glamorous world of advertising attending conferences all over the world,
wining and dining to network with clients and bag more business, etc is the done thing.
Now all these expenses will come under the ambit of fringe benefi t tax. Also, advertising
agencies are people-oriented one and staff welfare and salaries account for almost 50 per

cent of their expenses. The fringe benefit tax will thus hurt ad agencies badly.
(d) Reaction of the Indian Incorporations as to the enactment of FBT: India Inc is quite
nervous about the proposed fringe benefit tax and feels that the gains from the reduction

in corporate tax announced in the last Budget would be nullified by the cut in depreciation

rates.

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