Smaller companies may escape FBT ambit

The finance ministry may exempt smaller firms from the fringe benefit tax regime.

The proposal, currently at a nascent stage, stems from the information with the tax department that smaller firms, in most cases, are not paying FBT as they find it difficult to maintain detailed accounts.

"Since smaller firms are not paying the tax, there will be no revenue loss to the government. Also, we have an exemption limit in case of service tax. Keeping small firms out helps in closer monitoring. It also helps us focus on the bigger players," a finance ministry official said.

Officials said a final view on the proposal would be taken after the government receives the FBT returns due by October 31. "Once we receive the returns, we will get feedback from the market. A final decision will be taken after that," the official said.

Till August 31 of the current financial year, the finance ministry collected Rs 1,055 crore by way of FBT compared with Rs 641 crore in April-August 2005-06. In the entire 2005-06 financial year FBT collection was Rs 4,780 crore.

FBT was introduced by the government two years ago to prevent the widespread practice of providing perquisites. Perquisites were disguised as reimbursements or other miscellaneous expenses so employees could cut their tax liability.

The income-tax department had earlier this year asked chief commissioners to conduct a study of similar categories to ascertain the wide variation in the FBT paid by companies last year.

The department had noted that in the case of banks while State Bank of India had paid Rs 457 crore, Union Bank of India had paid Rs 32.4 crore, Central Bank Rs 31.7 crore and ICICI had paid Rs 27 crore.

The government had in the Budget this year made changes in the FBT regulations.

These included exempting contribution of up to Rs 1 lakh to an approved superannuation fund. Also the percentage of expenditure on which FBT is to be paid for certain categories was changed.

For instance, in the case of an employer engaged in the business of a hotel, a lower rate of 5 per cent of the expenses incurred on hospitality has been specified for calculating the liability of FBT against 25 per cent earlier.