Fringe tax falls on health perk

The government today said medical reimbursement up to Rs 15,000 for treatment in an unapproved hospital would attract fringe benefit tax.

"If any sum is paid by an employer for expenditure actually incurred by an employee for medical treatment in an unapproved hospital and it does not exceed Rs 15,000 during a year, such a sum does not fall within the meaning of 'salary' as defined in Clause (1) of Section 17 of the Income-tax Act, and not liable to income tax in the hands of the employee. There is no change in this position. Since such a sum is not taxable in the hands of the employee, the same is liable to the FBT," the revenue department said in its explanatory notes.

"As per the circular, the FBT is payable on medical reimbursement up to Rs 15,000 since the same is exempt from tax at the hands of the employee as a perquisite. Any amount paid in excess of this amount is, however, not subject to the FBT since the same is taxable in the hands of the employee. This does not appear to be in consonance with the government's intent to tax benefits, which otherwise were difficult to tax in the hands of the employee," said Rajiv Anand, associate director, PricewaterhouseCoopers.

The note also said BPOs, too, would be in the ambit of the FBT. The board clarified that the concessional valuation rate of 5 per cent available to computer software would not include information technology-enabled services.