The Hindu Business Line : Take fringe benefit tax seriously, caution experts

IS the fringe benefit tax (FBT) route chosen by the Government likely to hit tax planning by assessees? Some tax experts think so, and have cautioned all those liable to pay the FBT, especially under the quarterly advance tax payments for April-June this fiscal, to be careful while tabulating various FBT-covered heads such as travel, hotel stay and conferences.

Experts feel that non-payment of full FBT may lead to the actual expenditure itself being questioned, meaning indirectly that no clear tax planning can be done, if queries by the Department have to be attended to all the time.

Mr Narayan Jain, tax advocate, cautioned against the practice of booking additional expenditure after submission of a complete tabulation, even if it was on account of a genuine mistake, as this may expose assessees to endless questioning by I-T sleuths.

Describing the FBT as a highly undesirable levy, he said tax planning by everyone at the end of the year would now go for a six, as the Department officials can pose awkward questions to any assessee booking such excess expenditure, which may have escaped the initial tabulation. He pointed out that the Department bigwigs themselves do not favour separate FBT returns as it would stretch the existing manpower resources to the maximum. Urging all assessees to take the FBT seriously, Mr Jain said small partnership firms may be better off converting into proprietary concerns to bypass the FBT liability, as even loss-making companies now have to pay the FBT at 30 per cent of the value of such deemed benefits.

According to the Finance Bill 2005, "In cases where the employer directly reimburses the employee for expenses incurred, it does become difficult to effectively capture the true extent of the perquisite provided because of the problem of cash flow in the hands of the employer."

A two-pronged approach is now adopted by the Department for taxing fringe benefits, under which perks which are directly attributed to employees will continue to be taxed in their hands, in accordance with the existing provisions of Section 17(2) of I-T Act, and where attribution of personal benefits poses problems, the FBT will be levied on the employer on the value of such benefits provided or deemed to have been provided.

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