Watered down Exemption of Rs 1 lakh for contributions to superannuation fund Medical samples, equipment, celebrity endorsements, free transport excluded Benefits under `tour and travel', hospitality to attract 5 per cent

Our Bureau

New Delhi, Feb. 28

The Government today watered down provisions of the Fringe Benefit Tax (FBT) to enable employers hand out perks and facilities to their employees, including a relaxation in exemption limits on contributions to employee superannuation schemes and tax exemptions in case of expenditure by employers on facilities such as employee transport, free medicine samples and celebrity endorsements.

However, this has not come up to the expectations of India Inc. as it was expecting sharper reforms or abolishing of the tax itself.

Justifying the imposition of FBT in last year's budget as a revenue-raising measure important for "horizontal and vertical equity", the Finance Minister, Mr P. Chidambaram, in his Budget on Tuesday prescribed an annual FBT exemption threshold of Rs 1 lakh per employee for contributions made by the employer to an approved superannuation fund. Since Section 80 C of the Income Tax Act already provides for an exemption of up to Rs 1 lakh for contributions by an employee to an approved superannuation fund, the effective tax exemption available to an employee contributing to such funds goes up to Rs 2 lakh per year.

According to the new proposals, benefits offered by employers under the `tour and travel' head will now attract five per cent FBT instead of 20 per cent levied last year. Airline companies and shipping industry offering benefits in the form of `hospitality' and `use of hotel boarding and lodging facilities will have to pay five per cent as FBT compared to 20 per cent levied earlier.

The Budget proposes to specifically exempt any benefit provided by employers in the form of free or subsidised transport to their employees for commuting to the workplace from being termed a fringe benefit.

The industry, however, was not very upbeat on the relaxations given by the Finance Minister on the FBT front.

Mr Shivender Mohan Singh, Chairman, Fortis Ltd, & Chairman, Healthcare Committee of FICCI

, said, "We were expecting it to vanish or get added to corporate tax as some percentage point but that has not happened.

Mr Harsh Pati Singhania, Managing Director of JK Paper Ltd,

too expressed disappointment. He said, "There were indications from the Government for simplification of FBT. But that has not happened.''

Mr K.R. Kim, President, South-West Asia, LGE, and MD LGEIL,

also felt that "nothing concrete'' had been done, while

Chairman and CEO of Eicher Motors, Mr S. Sandilya,

called it a "cause for concern, as the industry was expecting it to be totally abolished or significantly simplified, but it has been only marginally simplified.''

But

Mr Malvinder Singh, CEO, Ranbaxy,

termed the steps taken in FBT that impact the pharmaceutical sector as "positive'', for now free samples of medicines and medical equipment to doctors would not fall in the ambit of the tax.

Mr Sunil Duggal, CEO, Dabur India Ltd,

also welcomed the clarification of FBT and removal of genuine expense from FBT.

(This article was published in the Business Line print edition dated March 1, 2006)
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