Please find below the budget reaction on the abolition of FBT by the
government and the increased burden of tax on employees. The reaction is
from Dr. Rakesh Gupta, Senior Advocate and former ITAT (Income Tax
Appellate Tribunal) member. Also, please find attached Dr. Gupta's
photograph for the same.
Hope you will be able to carry this news for the benefit of your reader and
guide them about the implication of FBT abolition to them.
Thanks and regards,
Farooque Shaikh
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Ogilvy Public Relations Worldwide
Tel.: +91-22-44344669
Cell: +91-9819753272
www.ogilvypr.com
(See attached file: Article on tax burden on employees post FBT abolition
- Dr. Rakesh Gupta.doc)(See attached file: Photo - Dr. Rakesh Gupta.jpg)
Would the Tax on Perquisite (Post FBT Abolition) Over Burden the Employee?
Dr. Rakesh Gupta
Advocate and former Income Tax Appellate Tribunal (ITAT) member
The Union Budget is out. Industry's main demand of Abolition of FBT has
been met. Contribution to an approved Superannuation Fund exceeding Rupees
One Lac and ESOP's to employees will be now chargeable as perquisite in the
hands of the employees. That there would be further impact of taxation in
the hands of the employee is clear, as the ministry would now define the
tax incidence on employees on account of the fringe benefits that they get
from their employers.
The question that would be arising in the minds of the millions of
employees would be the likely impact on them from the change. Yes, they got
a few sops from the Budget. The basic exemption limits were raised by Rs
10,000/ giving them a net benefit of Rs 1,000/. Employees above Rs 10 Lacs
taxable salary got extra benefit due to doing away of the 10% surcharge on
their income tax. But would they still lose overall from the budget
provisions, as the burden of taxation is passed back to them. After all
most companies had adjusted their pay packages on the basis of the Cost to
Company of the employee, including the Fringe Benefit Tax it had to pay.
Would it be a windfall for the company at the cost of the employee?
The budget proposal would indicate that the big burden due to the change
were on ESOP's and contribution to pension schemes, if one were to assume
that the rest of the tax incidence were not material enough to be part of
the budget proposal. Alternatively, one could gauge on the likely scenario
impact by referring to the taxability on fringe benefits prescribed for
companies not under FBT, as this rule served the basis for the valuation of
perquisites of the employees of these companies for the last four years
that FBT was in force.
Assuming that the same would be mandated for the rest of the employees
after some alignment with the exemptions prescribed under FBT in recent
times, namely prescribed electronic meal cards, crèches, other statutory
benefits, first aid facility for employees etc, how would the employee
fare?
The valuation of perquisite should have the same exemptions for benefits as
were prescribed under FBT on the employer so that employees are not taxed
in more burdensome manner. These include valuation in respect of prescribed
electronic meal cards, prepaid vouchers, and meals, crèches, other
statutory obligations etc. Additionally, benefits that already have
exemption as perquisites for employees of non-FBT companies should continue
to be exempt up to the prescribed amount. This would again exclude meals
through various provisions, Gifts and medical reimbursement up to a certain
amount among other items from being included as taxable perquisite.
However, there could still be tax incidence on account of motor car,
driver, club membership, credit cards and a host of other items. Taking the
sum total of the impact, the employee is likely to get burden with more
tax, and this could completely override the tax advantage that the
individual employee got from the budget, unless the current exemptions are
continued and valuation of benefits is done to ensure no more burden on
employees as was in pre FBT regime.
In conclusion, we see that the employees are likely to face more tax burden
from the transfer of tax on Fringe Benefits to them. It is hoped that the
government would be mindful of the impact and align the rules of valuation
with objective of at least maintaining the tax on benefits no more than pre
FBT scenario. While framing the rules it should be borne in mind that the
last rules for valuation of perquisites were defined in 2001 and inflation
has been running high since then. The need to leave sufficient money in the
hands of the employees to increase spending power is the need of the hour.
-END-
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