Expense categories that attract FBT

The expenses on which the FBT is attracted can be divided into the following three categories:

Expenditure, which result in collective benefits to the employees

This is the category of expenditure that the Finance Minister had in his mind, while proposing the law for taxability of fringe benefits. 50% of such expenditure is chargeable to tax. This category covers items such as expenses on festival celebrations, use of health club and similar facilities and expenditure on gifts.

Expenditure which results in individual benefits to employees

Logically the taxability of the expenditure directly attributable to the employees should have been in the hands of the employees directly, the lawmakers decided to tax some of these items in the hands of the employer. These items are liable to tax at 100% of the amount spent. The category includes such items as the concession in the value of tickets borne by the employer for the private journey of the employee, and the amount paid towards the contribution to superannuation fund.

Expenses which are in the nature of business expenditure

This is a long list of expenditure, which are not fringe benefits though, but would be taxed as such under the provisions of fringe benefits tax. The list includes such expenses as entertainment, provision of hospitality of every kind by the employer to any person (but not to the employees in office or factory, or by paid vouchers), conference, conveyance, tour and travel (including foreign travel), use of hotels, lodging and boarding facilities, repair, running (including fuel) and maintenance of motorcars and aircrafts and amount of depreciation thereon, use of telephone (including mobile phone) maintenance of any accommodation in the nature of guest house. 20% of such expenditure would be chargeable to RBT. This rate is 5% in respect of certain categories of business.

The law is applicable to all employers, excluding an individual, an HUF and charitable trusts and institutions. The earning of business income is not the criteria for taxability, the law clarifies that the tax would be levied on all activities whether or not such activities are carried on with the object of deriving income, profits or gains. The assessees who are not required to pay tax under the Income Tax Act since their income is exempt, and the assessees who do not have a taxable income, or have a loss during a year shall also be liable to pay the fringe benefit tax. While local authorities are also included in the definition, Governments have been excluded. This has also been clarified by Clause 4.2 of the Circular.