The Hindu Business Line : FBT: Software industry feels let down

THE revamp in fringe benefit tax valuation brought some relief to the IT sector, although the software industry - which had been hoping that all items of `genuine business expenditure' would be spared completely from this tax burden - was left disappointed.

"Although it is a step forward, we are not happy at all. We had hoped for a full exemption, and we stick to our stand that FBT is retrograde. Not only does it go against the principle that an employer should do good things for their employees, it also increases the amount of paperwork involved," the Nasscom President, Mr Kiran Karnik said.

According to the Amendment to the Finance Bill 2005, in the case of an employer engaged in the business of manufacture or production of computer software, the value of FBT for conveyance, tour and travel (including foreign travel), use of hotel, boarding and lodging facilities will be computed on a base of five per cent instead of 20 per cent of the total expenses as had been proposed earlier.

This means that for a company like Infosys - whose overseas travel expenses (under software development as well as selling) was pegged at Rs 274.55 crore in 2004-05 - the outgo as proposed in the Union Budget would have worked out to over Rs 16.47 crore. This outgo now stands reduced to over Rs 4.1 crore, with today's amendment.

Mr Karnik had earlier expressed concern on the FBT proposal saying that while the monetary implication for the sector - which undertakes overseas onsite projects - were huge, the "concept itself was worrisome. Work cannot be a fringe benefit. I could have understood if it was health-club membership," Mr Karnik had said in March.

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