I would like to take this opportunity to write this mail to you on the
recent abolition of FBT and how its going to impact the employees.
Please find below the reactions on the abolition of FBT by the government
and the increased burden of tax on employees by Dr. Rakesh Gupta, Senior
Advocate and former ITAT (Income Tax Appellate Tribunal) member. Also,
attached his 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)
Advocate and former Income Tax Appellate Tribunal (ITAT) member
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 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. 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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