What is Fringe Benefit Tax?

Last Updated at: Oct 30, 2020
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The Finance Act, 2009, abolished Fringe Benefits Tax completely. According to the Finance Act 2020,  such perquisites are taxable in the hands of employees. These may include the value of accommodation, leave travel concession, encashment of unavailed earned leaves, medical reimbursement, and so on.

 

A lot of companies and businessowners are not familiar with the concept of fringe benefit taxes. It is a form of income tax that is paid by the employer to the authorized bodies if they are providing fringe benefits to some of the present as well as former employees of their company.

Fringe Benefit Tax (FBT) is an additional income tax payable by the employers on value of fringe benefits provided or deemed to have been provided to the employees. The FBT is payable by an employer who is a company; a firm; an association of persons excluding trusts/a body of individuals; a local authority; a sole trader, or an artificial juridical person.

This tax is payable even where employer does not otherwise have taxable income. Fringe benefits are defined as any privilege, service, facility or amenity directly or indirectly provided by an employer to his employees (including former employees) by reason of their employment and includes expenses or payments on certain specified heads.
The benefit does not have to be provided directly in order to attract FBT. It may still be applied if the benefit is provided by a third party or an associate of employer or by under an agreement with the employer.

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The value of fringe benefits is computed as per provisions under Section 115WC. FBT is payable at a prescribed percentage on the taxable value of fringe benefits. Besides, surcharge in case of both domestic and foreign companies shall be leviable on the amount of FBT. On these amounts, education cess shall also be payable.

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Every company shall file a return of fringe benefits to the Assessing Officer in the prescribed form by October 31 of the assessment year as per provisions of Section 115WD. If the employer fails to file return within specified time limit specified under the said section, it/he/she will have to bear penalty as per Section 271FB .

Some of you might be surprised to find out that you are liable to pay the FBT even when the income is not taxable under regular income tax. In this case, FBT might seem a little unfair on the outset but the reality is exactly opposite to what you may think.