Fringe Benefit Tax

Fringe Benefit Tax is the brain child of P.Chidambaram, the then Finance Minister of India. It was imposed in the year 2005. This guy knew how to take the money out from the common man in every possible way. It reminds me of the 1996 budget where he introduced the Competition Post card. This was very unique I hadn’t heard of it, he might have followed someone’s idea but the credit goes to him.

The taxation of perquisites — or fringe benefits — provided by an employer to his employees, in addition to the cash salary or wages paid, is fringe benefit tax. Any benefits that are provided to the employees are taxed and the tax has to be paid by the employers. This had created a lot of commotion in the corporate circles.

Good to know that it is abolished in the current budget by Pranab Mukherjee. FBT was at the rate of 6.8%. I thought it is such a nice move. But it is not. if you thought just like me, then you will be surprised by the findings.

Abolition of the much hated FBT is good for employers but not so good for employees. The reason is that all many of those items that were taxable as FBT will now be subjected to perk tax in the hands of the employees. Admittedly, the FBT in most cases was being transferred / borne by the employee – however, such FBT was @6.8%. Now since items earlier under FBT will be added to the employee’s income as a perquisite, the tax will be applicable at the slab rates which in all cases are above 6.8%.

Government is smart, they are getting what they had to get. It is only the people like us who get wrong messages and be happy only to realize that we will be paying more tax. At the end of the day when we get salary we will be paying more tax just because FBT is abolished.

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2 thoughts on “Fringe Benefit Tax

  1. Bidhan says:

    Good to know this …it would have been nice if you could explain how all this is going to translate into employee’s tax burden and what they can do avoid it..some example etc

  2. Saravanan says:

    @Bidhan:

    I tried to find more information on this but could not succeed for now. I shall write more about it when I find the relevant information.

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