Medical reimbursement

If any sum is paid by the employer for expenditure actually incurred by the employee for medical treatment in an unapproved hospital and it exceeds Rs. 15,000/- during the year, such sum is salary as defined in clause (1) of section 17 of the Income-tax Act and liable to income-tax in the hands of the employee. There is no change in this position. Since such sum is taxable in the hands of the employee, the same is not liable to FBT.

However, if any sum is paid by the employer for expenditure actually incurred by the employee for medical treatment in an unapproved hospital and it does not exceed Rs. 15,000/- during the year, such sum does not fall within the meaning of salary as defined in clause ((1) of section 17 of the Income-tax Act and not liable to income-tax in the hands of the employee. Since such sum is not taxable in the hands of the employee, the same is liable to FBT. (FAQ 69)

Capital expenditure

Expenditure on any capital asset, in respect of which, depreciation is allowable u/s 32 of the Income-tax Act does not fall within the scope of sub-section (2) of section 115WB of the Income-tax Act since the proximate objective of incurring such expenditure is the acquisition of a capital asset. Therefore, such expenditure is not included in reckoning the value of fringe benefits [except depreciation on motor cars or aircrafts referred to in clauses (H) and (I) of sub-section (2) of section 115WB] and is not liable to FBT. (FAQ 89).

There seems to be inconsistency in the rationale applied for this FAQ on Capital Expenditure and the rationale specified in FAQ 16 in respect of pre-operative expenses which states that any expenditure incurred for the purposes referred to in clauses (A) to (P) of sub-section (2) of section 115WB is liable to FBT!

Expenditure on festivals

Expenditure on meeting/ get-togethers of employees and their family members on the occasion of any festival like Navratri, Diwali Id, Christmas or New Year is expenditure on festival celebrations. Such expenditure would, therefore, fall within the scope of clause (L) of sub-section (2) of section 115WB. Expenditure on meeting/get-together of employees and their families on non-festival occasions (including annual day), may be classified as expenditure on entertainment within the meaning of clause (A) of sub-section (2) of section 115WB or as expenditure on employees welfare within the meaning of clause (E) of sub-section (2) of section 115WB of the Income-tax Act. Such expenditure is liable to FBT.

However, expenditure on celebration of Independence Day and Republic Day will not be liable to FBT because they are not festivals as normally understood. (FAQ 95)