The Hindu Business Line : More on the `fringe' menu

I UNDERSTAND that individuals are not subject to the fringe benefit tax (FBT). What is the position with regard to a proprietary concern? In the case of partnership firms, companies and so on, will the FBT be payable even in respect of telephones installed in the office, mobile phones used by employees and cars rented by the company/firm and used by the directors/partners. Is the FBT applicable only to cars that are owned or even rented vehicles? What is the position on sales promotion and travel expenses incurred by persons other than employees of a company/firm?

Bharat Agarwalla

Reply

There is no FBT on proprietary concerns. A proprietary concern does not have separate assessment status under the Income-Tax Act, but is assessed only as an individual. Since the FBT does not apply to individuals and HUFs, proprietary concerns too remain outside the purview of the tax.The language used in the Act suggests that the FBT will be attracted where an expense of the nature referred to in Section 115WB is wholly or partly related to employees. However, the CBDT, through Circular No. 8 of 2005, has clarified that expenses listed in Section 115WB(2) will attract the FBT even if the expense is not related to employees. Expenses incurred on the use of telephones, whether installed in the office or at the residence, and mobile phones will attract the FBT. As clarified by the Circular, car rentals, sales promotion and travel expenses even if not related to employees will attract the FBT. Expenses for use of a rented car will also be subject to FBT. This columnist is of the view that if expenses are not related to employees in its entirety, the same will not be subject to FBT.

Query

Will companies registered with a non-profit motive under Section 25 of the Companies Act also be subject to the FBT?

K. P. Sivadas

Reply

Though the language used in Section 115W does not support the view that a Section 25 company will not be subject to the FBT, the CBDT (in Circular No. 8 of 2005, while answering Question No. 4) states that such a company will not be liable to the FBT if its income is exempt under Section 10(23C) or such a company is registered with the Commissioner of Income Tax (CIT) under Section 12AA of the I-T Act.

Query

What is the tax rate applicable in respect of fringe benefits?

Anonymous

Reply

The FBT will be payable at 30 per cent (as increased by a surcharge of 10 per cent and a further additional surcharge of 2 per cent on the tax and surcharge) on the value of fringe benefits. The value of fringe benefits will have to be determined in accordance with Section 115WC of the Act.

Query

A company has taken on rent two accommodations. These are used as guest-houses for the employees of the company. For one of the houses, the company pays the full rent, and for the other, it pays only a third of the rent and collects the balance from its employees. Will such rental expenses be subject to fringe benefit tax?

Anonymous

Reply

Section 115WB(2)(K) provides that expense incurred for maintenance of any accommodation in the nature of guest-house other than accommodation used for training purposes will be treated as a fringe benefit. In the instant case, the rental will be an expense incurred for the maintenance of guest-house and will, therefore, be subject to fringe benefit tax unless the same is used for training purposes.

Query

In our company, an employee's mother owns a car. The car is taken on lease from the mother and made available to the employee for official and personal use.

The employee's mother is paid a monthly rental in respect of the car taken on lease from her.

Will this rental expense be subject to FBT in the hands of the employer? Will the rent received by the mother be treated as her income?

Praveen

Reply

The rental expense will be subject to fringe benefit tax in the hands of the company. Twenty per cent of the expense will be treated as the value of fringe benefit.

The rent received by the employee's mother will be treated as her income and will have to be offered to tax accordingly.

Query

I am the managing partner of a partnership firm. The sales executives of the firm travel to various places and are provided food and accommodation there. Will the expenses on food and accommodation be subject to fringe benefit tax? These employees are provided mobile phones and motorcycles as well. Will the expenses on running and maintaining the motorcycles and those incurred towards payments of mobile phone bills be subject to FBT? In our firm, cars are used by managers and working partners for business purpose. Will the expenses on the cars and depreciation thereon be subject to FBT?

N. Suresh

Reply

The expenses on food and accommodation provided to the sales executives of the firm at the time of their travel will be subject to FBT. Section 115WB(2)(G) provides that expense incurred for use of hotel, boarding and lodging facilities will be a fringe benefit. Payments for settling mobile phones bills will also be subject to FBT.

This is provided for in Section 115WB(2)(J). Insofar as motor cycles are concerned, though no specific entry in found in Section 115WB(2), the expense incurred thereon can be treated as towards employee welfare and subject to FBT since such expense is a fringe benefit under Section 115WB(2)(E). The expenses on repair, running (including fuel), maintenance of cars and depreciation thereon will also be a fringe benefit. However, this columnist is of the view that expenses incurred on a car used exclusively by a managing partner will not be subject to FBT, though the circular of the Board clarifies otherwise.

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