Clause 37 of the Finance Act 2005 has created the new law relating to taxability of fringe benefits, by inserting new sections 115W to 115WL in the Income Tax Act. Section 115W(a) defines an employer to be a company, a firm, an association of persons or a body of individuals, a local authority and every artificial juridical person, but excluding any fund or trust or institution eligible for exemption u/s 10(23C) or registered u/s 12AA. Section 115WA is the charging section which provides that there shall be levied a fringe benefit tax @ 30% on the fringe benefits levied or deemed to be levied by an employer to his employee.

Clause (2) of section 115W clarifies that fringe benefit tax shall be payable by an employer even if he is not liable to pay income tax other wise. S. 115WB (1) defines the fringe benefits to mean any privilege, service, facility or amenity, directly or indirectly, provided by an employer, whether by way of reimbursement or otherwise, to his employees (including former employee or employees); any free or concessional ticket provided by the employer for private journey of the employees or their family members; and any contribution by the employer to an approved superannuation fund of for employees.

Subsection 2 of S. 115WB provides that fringe benefit tax shall be levied even when activity is carried on, not with an intention of deriving profits or gains, and lists out the following 17 categories of expenses, and an employer shall be deemed to have been provided the fringe benefits if he incurs such expenses. The expenses specified are:

1. entertainment;

   1. provision of hospitality of every kind by the employer to any person, whether by way of provision of food or beverages or in any manner whatsoever and whether or not such provision is made by reason of any express or implied contract or custom or usage of trade, but does not include-

   2. any expenditure on, or payment for food or beverages provided by the employer to his employees in office or factory;

   3. any expenditure on or payment through paid vouchers which are not transferable and usable only at eating joints or outlets;

2. conference (other than fee for participation by the employees in any conference)

   For this purpose expenditure on conveyance, tour, travel, on hotel, or boarding and lodging in connection with any conference is also deemed to be an expenditure on such conference.

3. Sales promotion including publicity. However this expenditure is excluding the following:

   1. expenditure, (including rental) on advertisement of any form in any print( including journal, catalogues or price list) or electronic media or transport system;

   2. expenditure on press conference, business convention, fair or exhibition;

   3. expenditure on the publication in any print or electronic media of any notice required to be published by or under any law or by order of a court or tribunal;

   4. expenditure on advertisement by way of signs, art work, painting, banners, awnings, direct mail, electric spectaculars, kiosks, hoardings, bill boards or by way of such other medium of advertisement;

   5. expenditure by way of payment of any advertisement agency for the purpose of clause (i) to (iv) above.

4. Employees' welfare. For the purpose of this clause, any expenditure incurred or payment made to fulfil any statutory obligation or mitigate occupational hazards or provide first aid facilities in the hospital or dispensary run by the employer shall not be considered as expenditure on employee welfare.

5. Conveyance, tour and travel (including foreign travel);

6. Use of hotels, lodging and boarding facilities;

7. Repair, running (including fuel) and maintenance of motorcars and amount of depreciation thereon;

8. Repair, running (including fuel) and maintenance of aircrafts and amount of depreciation thereon;

9. Use of telephone (including mobile phone) other than expenditure on leased telephone line;

10. Maintenance of any accommodation in the nature of guest house other than accommodation used for training purposes;

11. Festival celebrations;

12. Use of health club and similar facilities;

13. Use of any other club facilities;

14. Gifts;

15. Scholarships;

Sub-section. 3 of S. 115WB provides that for the purpose of sub section (1) the privilege, service, facility or amenity does not include perquisite in respect of which tax is paid or payable by the employee.

As per S. 115WC(1) the fringe benefit shall be the aggregate of the following:

1. In respect of free ticket the full value of ticket, in respect of concessional ticket, the full value reduced by the amount paid by or recovered from the employee;

2. Actual amount of contribution to superannuation fund;

3. 20% of expenses referred to in clause (A) to (K);

4. 50% of expenses referred to in (L) to (P);

1. In the case of employer engaged in a hotel business, fringe benefit in respect of clause (B) shall be 5% instead of 20%;

2. In the case of employer engaged in a construction business, fringe benefit in respect of clause (F) shall be 5% instead of 20%;

3. In the case of employer engaged in a pharmaceuticals business, fringe benefit in respect of clause (F) shall be 5% instead of 20%;

4. In the case of employer engaged in a software business, fringe benefit in respect of clause (F) and (G) shall be 5% instead of 20%;

5. In the case of employer engaged in a motor transport business, fringe benefit in respect of clause (H) shall be 5% instead of 20%;

6. In the case of employer engaged in a air transport business, fringe benefit in respect of clause (I) shall be NIL

S. 115WD casts a duty upon every employer to furnish a return of income before the due date, which is prescribed as the same date, as prescribed U/S 139(1). The section also makes provision for issue of notice by assessing officer in case the assessee does not furnish a return of income, and also provides for the revised returns. Sections 115WE, WF, WG, and WH lays down a detailed procedure for assessment, best judgment assessment and assessment of fringe benefits escaping assessment.

S. 115WJ casts a duty on the assessee to pay an advance tax of 30% of the fringe benefit tax, quarterly, on or before the 15th of the month subsequent to the last month of the quarter, but the advance tax for the quarter ending 31st March shall be payable by the 15th of March! The assessee shall be liable to pay interest on the shortfall of the advance tax.

Consequent upon the introduction of the fringe benefit tax, the following amendments have been made in section 2:

1. Definition of assessee to include an assessee in respect of fringe benefits tax also: Sec 7(a) has been amended to provide that assessee shall mean any person in respect of whom any proceedings under this Act has been taken for the assessment of his income or assessment of fringe benefits or the income of any other person in respect of which he is assessable, or of the loss sustained by him or by any such person, or the amount of refund due to him or to such other person. The effect of this amendment is that if a fringe benefit tax is payable by any person, and any proceeding has been taken under this Act for the assessment of the tax on fringe benefit tax, such person shall be an assessee for the purpose of this Act.

2. "Fringe benefits" formally defined: A new Clause 23B has been inserted in section 2, to define fringe benefits to mean any benefits referred to in section 115WB.