Holiday Homes. Taxability in employer's hand after Budge

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Fringe Benefits TaxSome Issues

• By Sunil H. Talati
• M.Com, L.L.B., F.C.A.

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Amendments

• Section 17(2)(vi) substituted
• The value of any other fringe benefit or amenity
  (excluding the fringe benefits chargeable to tax
  under Chapter XII-H) as may be prescribed.
• New Chapter XII-H added to provide for a new tax
  as Income-tax on Fringe benefits
• Rule 3(7) on valuation of perquisites amended to
  drop several items of perquisites.

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Roll Back / Dilution

• Individual employers excluded.
• Slabs reduced to 3. (100,50 20)
• Scholarship reduced from 100 to 50
• Sales Promotion and Advertisement expenses almost
  exempt.
• Sunrise / People Centric Industry on a privileged
  path IT, Pharma, Transport etc.
• Clarifications on few items Medical, Transport
• Sodexo once again did the trick. Regained
  exemption and that too with limit of Rs.50
  removed.

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Rationale behind FBT

• Cost-to-Company approach for taxation
• Inherent difficulty in isolating personal
  element in collective enjoyment of benefits.
• Emerging practice now to tax the perquisites in
  the hands of the employers for better control.
• Simplified way of tax collection.
• Less painful and less visible to employees.
• Trap owner-managed companies.

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Ramifications Immediate

• Issues of classification and computation to
  galore.
• Separate tracking of expenses necessary.
• Compliance cost and efforts to go up.
• Cost to business as some of the genuine business
  expenses are being taxed.
• Superannuation Scheme will be closed down.

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Overview of tax provisions

• Items covered by Section 10 as exempt income
• Salary as defined u/s 17(1)
• Perquisites defined u/s 17(2)
• Valuation of perquisites under Rule 3
• Fringe Benefits u/s Section 115W

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Items covered under Section 10

• Leave Travel Assistance (5) with Rule 2B
• Leave Salary (10AA)
• Payment from Superannuation Fund (13)
• House Rent Allowance (13A) with Rule 2A
• Special Allowances (14) with Rule 2BB
• Scholarship (16)

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Items covered u/s 17(1)

• Salary and wages
• Annuity / Pension
• Gratuity
• Fees, Commission,
• Perquisites u/s 17(2)
• Profits in lieu of Salary
• Excess of PF Contribution and Interest

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Items covered u/s 17(2)

• Rent free accommodation
• Concessional Rent
• Payment for personal obligations
• Premium paid on life insurance / annuity other
  than PF, SF, EDLI and Group Life
• Other fringe benefits as per Rule 3
• Medical Benefits exempt under provision

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Items covered under Rule 3

• Provision for residential accommodation
• Sweeper, Gardner, Watchman, Attendant
• Supply of Gas, Electricity, Water
• Free / concessional Education facilities
• Other Fringe Benefits.

This was the beginning of the attack on salaried
class
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Other Fringe Benefits

• Interest free / concessional loans
• Traveling, touring, accommodation
• Meals, lunch, refreshment etc.
• Gift vouchers / tokens
• Credit Cards
• Clubs
• Use / Transfer of movable assets
• Any other benefit, amenity,service, right,
  privilege

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Fringe Benefits per Finance Bill 06

• Basis of charge as per Section115WA
• FBT is applicable if the following conditions are
  satisfied.
• FB are provided or deemed to be provided by the
  employer
• FB are provided to the employees during the
  previous year
• FBT is calculated _at_ 30 plus SC and EC
• FBT payable on thevalue of fringe benefits
• FB defined u/s 115WB
• Valuation provided u/s 115WC