FM announces fringe benefit tax

In his endeavour to widen the tax base and increase compliance, finance minister P Chidambaram today targeted indirect income in the shape of allowances like conveyance, entertainment and education, taxing employers at the rate of 30% for these benefits.

The budget for 2005-06 said the "fringe benefit tax' will be payable by an employer on value of benefits provided or deemed to have been provided during the previous year.

The budget said the tax would be computed on the basis of cost of free or concessional tickets for private journeys of the employees or their families, the actual contribution made by employer to the approved super-annuation fund and a specified percentage of each of the listed expenses.

Listing out the benefits, the budget said they included expenses of employers towards entertainment, festival, gifts, use of club facilities, provision of hospitality of every kind of person whether by way of food and beverage or in any other manner (excluding food or beverages provided to employees in the office or factory) and maintenance of guest houses.

The fringe benefits would also include conference, employee welfare, use of health club, sports and similar facilities, sales promotion, conveyance, tour and travel including foreign travel expenses, hotel boarding and lodging, repair, running and maintenance of motor cars, repair, running and maintenance of aircrafts, consumption of fuel other than industrial fuel, use of telephone and scholarships to the children of employees.