The taxation of perquisites -- or fringe benefits -- provided by an employer to his employees, in addition to the cash salary or wages paid, is subject to varying treatment in different countries.

These benefits are either taxed in the hands of the employees themselves or the value of such benefits is subject to a 'fringe benefit tax' in the hands of the employer.

The rationale for levying a fringe benefit tax on the employer lies in the inherent difficulty in isolating the 'personal element' where there is collective enjoyment of such benefits and attributing the same directly to the employee.

This is so especially where the expenditure incurred by the employer is ostensibly for purposes of the business but includes, in partial measure, a benefit of a personal nature.

Moreover, in cases where the employer directly reimburses the employee for expenses incurred, it becomes difficult to effectively capture the true extent of the perquisite provided because of the problem of cash flow in the hands of the employer.

Therefore, the finance minister has proposed to adopt a two-pronged approach for the taxation of fringe benefits under the Income-tax Act.

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.

In cases, where attribution of the personal benefit poses problems, or for some reasons, it is not feasible to tax the benefits in the hands of the employee, it is 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 benefits.

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.

Answered by Om Prakash , an ibibo Master, at 6:42 PM on September 26, 2008

The Central Board of Direct Taxes has issued a list of frequently asked questions with answers on Fringe Benefit Tax, clarifying some issues raised by the trade and industry at different fora after the presentation of the Finance Bill, 2005 and also after its enactment

Answered by Vipan Thapar , an ibibo Master, at 9:06 PM on September 23, 2008

The government has justified the FBT on the grounds that employers pay for collective benefits to employees, but this often includes some measure of personal benefit to certain employees. Some of these benefits are disguised as perquisites that allow employees to escape or reduce their tax liability. The FBT is a surrogate tax that’s levied to ensure that employers are not tempted to evade paying tax. Every employer (as defined under section 115W(a) of the Income Tax Act) will have to pay FBT on fringe benefits provided or deemed to have provided to his employees during any financial year (from April 1, 2005). Section 115WB(i) defines and enumerates the fringe benefits that are taxed, while Section 115WB(ii) defines the various types of expenditure incurred by the employer in the course of his business of profession, which will be considered as deemed fringe benefits.

Answered by Nagendra , an ibibo Master, at 6:39 PM on September 23, 2008

Well! The taxation of perquisites -- or fringe benefits -- provided by an employer to his employees, in addition to the cash salary or wages paid, is subject to varying treatment in different countries.

These benefits are either taxed in the hands of the employees themselves or the value of such benefits is subject to a 'fringe benefit tax' in the hands of the employer.

The rationale for levying a fringe benefit tax on the employer lies in the inherent difficulty in isolating the 'personal element' where there is collective enjoyment of such benefits and attributing the same directly to the employee.

This is so especially where the expenditure incurred by the employer is ostensibly for purposes of the business but includes, in partial measure, a benefit of a personal nature.

Moreover, in cases where the employer directly reimburses the employee for expenses incurred, it becomes difficult to effectively capture the true extent of the perquisite provided because of the problem of cash flow in the hands of the employer.

Therefore, the finance minister has proposed to adopt a two-pronged approach for the taxation of fringe benefits under the Income-tax Act.

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.

In cases, where attribution of the personal benefit poses problems, or for some reasons, it is not feasible to tax the benefits in the hands of the employee, it is 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 benefits.

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.

Information collected from http://www.rediff.com/money/2005/ma r/22spec.htm

Answered by Hemant Kumar , an ibibo Master, at 3:56 PM on September 23, 2008

The taxation of perquisites -- or fringe benefits -- provided by an employer to his employees, in addition to the cash salary or wages paid, is subject to varying treatment in different countries.

These benefits are either taxed in the hands of the employees themselves or the value of such benefits is subject to a 'fringe benefit tax' in the hands of the employer.

The rationale for levying a fringe benefit tax on the employer lies in the inherent difficulty in isolating the 'personal element' where there is collective enjoyment of such benefits and attributing the same directly to the employee.

This is so especially where the expenditure incurred by the employer is ostensibly for purposes of the business but includes, in partial measure, a benefit of a personal nature.

Moreover, in cases where the employer directly reimburses the employee for expenses incurred, it becomes difficult to effectively capture the true extent of the perquisite provided because of the problem of cash flow in the hands of the employer.

Therefore, the finance minister has proposed to adopt a two-pronged approach for the taxation of fringe benefits under the Income-tax Act.

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.

In cases, where attribution of the personal benefit poses problems, or for some reasons, it is not feasible to tax the benefits in the hands of the employee, it is 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 benefits.

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.

Answered by Ashwani , an ibibo Master, at 5:42 AM on September 23, 2008