Political parties may escape FBT

CBDT expected to clear air soon.

Here's something to cheer up political parties across the spectrum. Sonia Gandhi's frequent travels for fire-fighting or LK Advani's mobile phone bills may not come under fringe benefits tax with the Central Board of Direct Taxes (CBDT) expected to issue clarification on the issue soon.

All political parties were till now liable to pay the FBT as they were identified as a "person" by definition of the law, unlike in the case of the government, which was faceless and hence could not pay tax to itself, said chartered accountant Kishor B Karia, who is co-chairman, direct taxation committee, Indian Merchants' Chamber (IMC).

Political parties are constituted under the People's Representation Act, 1951. They are subjected to income tax as it is; and hence have to pay the FBT.

Under the current FBT proposals, political parties have no recourse to seeking exemption under three classes "" individual, Hindu undivided family and charitable trusts "" which are exempt from the FBT.

"They do not fit into any of these three categories," Karia said. However, the chartered accountants are expecting the CBDT to clarify soon that only entities carrying out "business" will be subject to the FBT.

Political parties were not seen as carrying out business, accountants said. By that logic, they would unquestionably seek shelter under the proposed clarification, they added.

"The clarification will bring substantial relief to political parties, in that they will not be liable to attract tax on most of the 16 items that fall under the purview of the FBT," said Karia.

In addition to political parties, even housing cooperative societies, which were also non-business entities, would stand to benefit from the proposed clarification, he added.

Today as per the wording of the FBT, all employers including charitable organisations, non-government organisations, hospitals, religious institutions and public sector undertakings are liable to pay the FBT.

The central and state governments are excluded from the tax. Corporate entities which do not otherwise pay tax like those in the tax-free zones or those which fall under minimum alternate tax will be liable.