CBDT to clear air on fringe benefit tax

Central Board of Direct Taxes (CBDT) is set to clear the air on the new fringe benefit tax (FBT) through a set of 60 frequently asked questions (FAQs). Apaprt from clarifications, businesses can also look forward to some fringe relief.

Tax issues like what would be treated as sales promotion and gift for the purpose of FBT are expected to be clarified. Would a car given to a top dealer be treated as gift or sales promotion?

The matter assumes relevance as FBT on sales promotion is computed on 20 per cent of the expense while on gifts it is computed on 50 per cent. The FAQ is expected to clarify the kind of expenses that would be treated as sales promotion.

The FAQs would be followed by rules which would cover all aspects relating to levy of FBT. The CBDT is expected to allow computation of the FBT on depreciation of motor vehicles for the purpose of advance tax at year end instead of actual basis every quarter as specified in the Finance Act.

With the advance tax due date (15 July) nearing, lack of clarity is forcing businesses to take a conservative view as FBT is required to be deposited on actual basis with 100 per cent accuracy.

Specific sectors like hotels and tour operators are expected to get a relief in the form of FBT on specific expenses being allowed to be computed on a 'net expenditure basis'.

For example, a hotel which incurs telephone expenses of Rs 5 crore, would be recovering the same from its guests. In fact, the guests would be billed much higher.

Similarly, tour operators might also be allowed to compute FBT on tours and travels on a 'net basis'. The CBDT is expected to dish out the final word on FBT on expenses like conveyance and leave travel allowance (LTA). Transport allowance of Rs 800 per month per employee is allowed as tax free perquisite.

To avoid differential tax treatment in case a company directly spends the money instead of giving an allowance, experts have asked the CBDT to allow businesses a deduction of an amount equal to the transport allowance for all its employees.

The PSUs face a dilemma. For instance, the car provided to employees is supposed to be for official work and hence should not fall under FBT.

Partnership firms are also awaiting clarity on issues like if a firm has many partners and few employees, would it still have to pay the FBT (even if there are hardly any employees)?

Companies are increasingly buying exercise machines to be used by their employees which is a capital expenditure. While FBT seeks to tax 50 per cent of the expenses on health clubs and similar facilities, the FAQs are expected to clarify that such capital expenditure would be excluded or not.