Finance Minister has abolished the FBT(fringe benefit tax ) wef AY 2010-11means from current financial Year ,A welcome step by the Govt but bad news is that now perquisites is now taxable in employee's hands which has been shifted earlier to FBT .There are few important points which relates to this amendments which I will try to cover in following paragraph.
  1. Applicable date:The finance Minister proposed to abolish this clause from AY 2010-11(FY 2009-10) and onwards assessment year .But many assesses have already deposited the FBT advance tax on 15 June ,2009 for the FY 2009-10.
    • what will be the fate of the advance FBT they have deposited?
    • will they have to file their return of FBT for Fy 2009-10 to claim the refund?
    • Can Advance FBT deposited be adjusted against Advance Income tax at the time of second quarter advance tax .All these issues has not been addressed at all.
  2. ESOP taxable in employee hand :Consequent to the withdrawal of FBT, following changes have been introduced in taxation of salary income.Presently, FBT is levied on the employer in respect of any allotment or transfer (directly or indirectly) of any specified securities or sweat equity shares to its employee (including former employee). Now, such benefit will be subject to tax as a perquisite only in the hands of the employee as under:
    • The perquisite value taxable in the hands of the employee will be the difference between the FMV of the specified security or sweat equity shares on the date on which the option is exercised and the amount actually paid by/ recovered from the employee. FMV will be computed in accordance with the method to be prescribed.
    • Presently, in case of shares/ debentures/ warrants acquired under an ESOP prior to enactment of FBT, the value considered for computing perquisite in the hands of the employee is considered as cost of acquisition(for calculating capital gain) on sale. Now, FMV considered for computing the perquisite value will be considered as cost of acquisition on sale of such specified security or sweat equity shares.
    • Now employee have to pay tax at on FMV-amount paid for ESOP on the date of option even though he had not realized any thing means has not sold any share or shares may have lock in period before which it can not be sold.
  3. Contribution to superannuation Fund:Presently ,conrtribution by the employer to an approved superannuation Fund for employee in the excess of Rs 100000 for each employee is subject to FBT in hands of employer .Now such excess will be taxable perquisite in the Hand of the employee
  4. Other perquisites:Further it is proposed in the budget that more fringe benefit which was liable to FBT or may not even liable to Fbt will be prescribed .These new List (yet to come) will also be included in salary income as perquisites.However some of the Fringe benefit autometically now included in salary as these expenses has not been included on the condition that employer has paid FBT on that expenses.Read section 17(2)(iv) with rule 3(7)
    • Meals ,Lunch and refereshments to employees subject to some exemption as prescribed
    • Travelling ,Touring,accommodation
    • Gift ,voucher Token
    • Credit card payment by employer on behalf of employee
    • Club expenses.
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