Fringe benefit tax trimmed

Savings a/cs out of withdrawal tax; IT exemption for women, elderly to cause Rs 400cr loss.

Finance minister P Chidambaram today retained both his controversial tax proposal "" the fringe benefit tax and the cash withdrawal tax "" but made modifications to offer some relief to individuals as well as corporates.

While retaining the fringe benefit tax (FBT) rate at 30 per cent, Chidambaram reduced the taxable value under six categories including entertainment and hospitality from 50 per cent to 20 per cent. 

The New Tax Order
% of expense under the fringe  benefit tax
	Earlier	Now
Use of telephone (other than leased lines)	10%	20%
Entertainment	50%	20%
Scholarship to children of employees	Actual	50%
Hospitality	50%	20%
Maintenance of accommodation like guest houses	50%	20%
Conference	50%	20%
Employee welfare	50%	20%
Sales promotion, including publicity	50%	20%
Free or concessional tickets	Actual	Actual
Contribution to superannuation fund	Actual	Actual
Festival celebration	50%	50%
Gifts	50%	50%
Use of club facilities	50%	50%
Use of health clubs, sports and similar facilities	50%	50%
Conveyance, tour and travel, including foreign travel	20%	20%
Hotel, boarding and lodging	20%	20%
Repair, running (including fuel), maintenance of motorcars and depreciation thereon	20%	20%
Repair, running (including fuel), maintenance of aircraft and depreciation thereon	20%	20%
Tax of 30% will be levied on the value of the fringe benefit calculated at the above rates

He, however, doubled the taxable value on the use of phones, other than leased lines, to 20 per cent.

Companies were given a respite on their spending on sales promotion including publicity, while benefits were extended to software and pharmaceutical companies by reducing the taxable value on conveyance and boarding lodging to 5 per cent as against 20 per cent for the other sectors.

"Assuming that every company gives every benefit listed to all employees, the effective increase (in the effective rate of tax on the corporate sector) would be 1-1.5 per cent," the minister said in the Lok Sabha, which cleared the Finance Bill. At present, the effective rate of tax on companies is estimated at 20-21 per cent.

Chidambaram announced that withdrawals from savings bank accounts would be exempted from the cash withdrawal tax.

Individuals and Hindu Undivided Family withdrawing above Rs 25,000 in a day from a current account and corporates withdrawing over Rs 1 lakh a day would be required to pay the 0.1 per cent tax. Withdrawals from term deposits will also attract the cash withdrawal tax.

He also enhanced the tax exemption limit for women by another Rs 10,000 to Rs 1,35,000 and for senior citizens to Rs 1,85,000 from Rs 1,50,000 in proposed in the Budget.

Now, women earning Rs 1.35 lakh-1.50 lakh would be required to pay 10 per cent income tax while those with an annual taxable income of Rs 1.5 lakh-2.5 lakh would have to pay tax at 20 per cent.

Women earning above Rs 2.5 lakh would be liable to pay 30 per cent income tax. For senior citizens, income between Rs 1.85-2.5 lakh will attract 20 per cent tax and beyond Rs 2,50,000, it would be 30 per cent.

The higher exemption limit is expected to cause a Rs 400 crore loss to the exchequer, while the changes in the FBT would be revenue neutral. The changes in the indirect tax rates are expected to have a nominal impact.

On indirect taxes, Chidambaram announced that mobile handset manufacturers will be exempted from the payment of 4 per cent countervailing duty on components for mobile phone manufacturing.

The specific excise duty on molasses, which was raised from Rs 500 a tonne to Rs 1,000 a tonne, was today reduced to Rs 750 per tonne.

The optional excise duty on nylon tyres was also cut to 8 per cent, while all parts of computer, including laptops, CPUs and mouse would be covered under 7 per cent import duty. CVD on nets for tuna fishing was reduced from 16 per cent to 8 per cent.

Also, premium paid for farm insurance would be excluded from payment of service tax.

Clarifying the proposals on the Rs 1 lakh tax exemption on savings, Chidambaram said, "The state is not going to reflect a bias against any one instrument or the other. This is a clean-up of the tax system."

As part of the changes to the FBT, sales promotion expenses other than those on ads in the print or electronic media or on buses and trains, press conferences, business convention, participation and fairs would be taxed.

Also, sponsorship of sports and other events organised by the government or trade association, spending on direct mails and putting up kiosks or billboards would not be included. All payments to ad agencies would also be exempted.

Similarly, expenses on meeting statutory obligations or for mitigating occupational hazards would be out of the ambit of the FBT.

Expenses on hospitality does not include payment for food and beverages provided by the employer in the office or in a factory or payment though food vouchers.

Expenditure on conferences would include expenses on tour and travel, including foreign travel.

Any free or concessional ticket provided by the employer for private journeys of employees or their family members and any contribution to an approved superannuation fund for employees will come under the purview of the tax.

While companies would be required to separate returns with a tax audit certificate, Chidambaram said the Institute of Charted Accountants of India will issue accounting standards soon.

The government also announced sectoral benefits to ensure that the genuine business expenses were not taxed.

Companies in the business of carriage of passengers or goods by motorcar or aircraft, the value of fringe benefit for repair, maintenance and depreciation on the vehicle has been fixed at 5 per cent (zero for aircraft) instead of 20 per cent for the other sectors.

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SECTORAL BENEFITS

Hotels to calculate fringe benefit on hospitality at 5% instead of 20% for other sectors

Construction companies liable to pay fringe benefit tax on 5% conveyance, tours and travel spending instead of 20% for the others

Drug and software companies to pay concessional FBT on 5% of the spending on conveyance, tours and travel, use of hotel, boarding and lodging as against 20% for other sectors

Companies engaged in carriage of goods and passengers by motor cars to pay FBT on 5% of the spending on repairs, maintenance, running (including fuel) and the depreciation thereon

Airlines not required to pay FBT on repairs, maintenance, running (including fuel) and the depreciation thereon

CASH WITHDRAWAL TAX

No cash withdrawal tax on savings bank accounts

Over Rs 25,000 withdrawn by individuals or HUF in a day from current account to be subjected to 0.1 % tax; for others on Rs 1 lakh withdrawn during a day

Tax to be levied on withdrawals from all banks instead of only scheduled banks proposed earlier

OTHER TAX CHANGES

Income tax exemption limit for women raised to Rs 1.35 lakh for senior citizens to Rs 1.85 lakh

Molasses: excise duty cut to Rs 750 per tonne

No countervailing Customs duty on components for mobile phone manufacturing

Optional excise duty on nylon tyres cut to 8 per cent

All parts of computers, including laptops and central processing units, to be subjected to 7 per cent import duty

Countervailing duty on nets for tuna fishing halved to 8 per cent