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Key Highlights
- A fringe benefit is provided by an employer to the employee in addition to the employee's salary.
- It includes perks like childcare reimbursements, company vehicles, tuition assistance, health insurance, employee stock options, etc.
- A fringe benefit tax is levied on the fringe benefits that are provided by the company to the employees, and paid to the government by the employers.
- In 2009, the Indian government abolished the fringe benefit tax, but it became effective from the financial year 2010-11.
A fringe benefit is provided by an employer to the employee in addition to the employee's salary. Perks like childcare reimbursements, travel tickets, company vehicles, tuition assistance, health insurance, subsidised cafeteria, employee discounts, etc. are examples of fringe benefits.For such expenses borne by the company, a tax is also levied, which is called a fringe benefit tax. In this blog, you will read about the meaning of fringe benefit tax, fringe benefit tax rates, exemptions allowed under this tax scheme, and if it is still levied on companies in India.
What is the Fringe Benefit Tax?
A fringe benefit tax is levied on the fringe benefits that a company provides to its employees, and is paid to the government by the employer.It should be noted that the Indian government abolished the fringe benefit tax in 2009, but it only became effective from the financial year 2010-11. Now, such benefits are taxable in the hands of the employees, which means, the value of the benefit is added to the employee's income and is taxed as a part of the income tax.
Fringe Benefit Tax Rate
When the fringe benefit tax was applicable in India, the fringe benefit tax rate was set at a flat 30 per cent of the value of the benefit that the company provided to its employees.
Fringe Benefit Tax Exemptions
When fringe benefit tax was in effect in India, a company could avail of certain tax exemptions, which included the following elements:
- Company Promotion : Amount paid by the company to an employee to promote the company and the goods/services they sell.
- Transport Expense : Expenses are borne by an employer to provide employees with transport to and from the office.
- Superannuation Fund : If an employer made a contribution to a superannuation fund for an employee, then an amount of up to ₹1 lakh per employee was exempted from tax.
- Leisure Activities : Expenses that an employer incurred related to providing employees with travel solutions, entertainment in the form of company off-site, or extracurricular activities.
Example of Fringe Benefit Tax
For instance, if a company gave an employee a car to use for both business and personal travel, the value of the car would be considered a fringe benefit. It would also be subject to a fringe benefit tax.
Fringe Benefit Tax Implications
While the employees of a company benefitted from the fringe benefits, the employers considered them as an additional burden. This is because of the fringe benefit tax that was levied on them.After the fringe benefit tax was abolished, the fringe benefits started to be taxable in the hands of the employees. It was implied that the value of the said benefit was added to the employee's income and taxed as a part of income tax.The income tax amount is based on the tax slab that you fall under based on your salary and other incomes.
Applicability of Fringe Benefit Tax Today
It is important to know that even though the fringe benefit tax was abolished in India, it is still levied in many other countries.If your company operates outside the jurisdiction of Indian laws, you should be aware of the applicable rates and exemptions. If you are an employer or an employee, you must be aware of such compensations and the applicable tax involved. Also Read: Your guide to Income Tax Exemptions
FAQS - FREQUENTLY ASKED QUESTIONS
What is a fringe benefit tax?
Fringe benefit tax is a tax levied on fringe benefits, such as childcare reimbursements, company vehicles, tuition assistance, etc. that are provided by a company to its employees. This tax is paid to the government by the employers.
What are some common fringe benefits that can be offered by employers?
Some common examples of fringe benefits are company-provided accommodation,
company-provided vehicles, educational allowances, subsidised meals, subsidised travel, childcare reimbursements, etc.
Is fringe benefit tax still applicable in India?
No. The Indian government abolished the fringe benefit tax in 2009, which became effective from the financial year 2010-11.
What was the fringe benefit tax rate in India when it was applicable?
The fringe benefit tax rate in India was set at a flat 30 per cent of the value of the fringe benefit that the company provided to its employees.
Were there any exemptions from fringe benefit tax?
Yes, exemptions from fringe benefit tax included:
Amounts paid by the company to promote the company and its products.
Expenses borne by an employer to provide employees with transportation vehicles.
Employer contribution to a superannuation fund for an employee.
Employer's expense in providing employees with travel solutions or entertainment.
Is fringe benefit tax a direct tax or an indirect tax?
A fringe benefit tax is a direct tax as it is levied directly on the employer.
Were there any penalties on non-payment of a fringe benefit tax?
Yes, non-payment of a fringe benefit tax resulted in penalties, such as interest charges and late fees.
Could employers recover fringe benefit tax from employees?
Generally, employers could not recover the fringe benefit tax from employees. However, in certain cases, employers were able to pass on the cost of the fringe benefit tax to employees through contractual arrangements in the salary structure.
. How is a fringe benefit tax levied today?
After the fringe benefit tax was abolished in India in 2009, the value of the benefit started to be added to the employee's income and recovered from the employee as part of their income tax.
My company provides us with a free bus service for commuting to the office. Will that be considered a fringe benefit?
Yes, free bus service for commuting to the office is a fringe benefit.
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
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