Bad news for salaried person: FBT abolished

Bad news for salaried person: FBT abolished

Employees enjoying perks such as rent-free accommodation, cars, chauffeurs, credit cards and club memberships may have to pay tax on the value of these benefits, with the government proposing a shift in the tax burden on perquisites (perks) from the employer to the employee.

Prior to FY06, employees paid tax on certain perquisites. However, with the introduction of Fringe Benefit Tax (FBT), the onus of paying tax on perks shifted to the employer. But this is set to change yet again, with the proposed scrapping of the FBT. This time, the government plans to cast the tax net wider. “More items will now come under perquisite taxation than what was covered prior to 2005-06,” said a senior government official.

Perks are benefits over and above the normal salary received by an employee. The Finance Bill 2009 says that employees will have to pay tax on Employee Stock Option Plans (ESOPS) and employers’ contribution to the superannuation fund, if the amount exceeds Rs 1 lakh per annum. For ESOPS, the value of the perk will be calculated as the difference between the fair market value (FMV) on the date of exercise of the option and the actual price paid by the employee.

If an employee applies, for, say, 100 shares under the stock option plan and the FMV of the shares on the date to exercise the option is Rs 80 per share while the actual amount paid is Rs 50 per share, the value of the fringe benefit would be Rs 3,000. The tax amount will depend on the employee’s tax slab.

For contributions to superannuation funds, the employee may have to pay tax on any amount contributed by his employer over and above Rs 1 lakh. Thus, if the employer’s contribution is Rs 1.5 lakh, the employee will have to pay tax on the incremental Rs 50,000, and the rate will depend on his tax slab.

The list of perks, which were taxed in the hands of the employee before 2005-06, included services of personal attendants provided by the employer, gas, electricity and water, concessional education, concessional journeys, interest-free loans, gift vouchers, free meals, hotel-accommodation (exceeding 15 days), medical facilities, besides rent-free accommodation, cars, chauffeurs, credit cards and club expenses.

The value of these services was the actual cost to the employer.

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