Definition of 'employer' holds key to FBT

The sword of the fringe benefit tax (FBT) that was hanging over the head of individuals conducting business or engaged in a profession, as well as charitable trusts, is expected to be lifted in the amendments to the finance bill. This could spell a major relief for both these categories which would have found themselves burdened with an additional tax. The FBT proposal has generated a lot of heat following the budget and several representations have been made to the finance ministry regarding this. At the heart of the issue is the definition of the term 'employer' because that determines who will be covered under the tax. According to the budget proposals, a separate return has to be filed for the tax and there will be a separate assessment of this tax too. It is important to understand who is considered as an employer because the FBT has to be paid by the employer for fringe benefits provided to the employee. Once an employer is covered under the definition, then FBT has to be paid even if there is no income tax or corporate income tax being paid. The proposal now is to keep individuals and Hindu undivided families (HUFs) out of the FBT net. The definition, as originally proposed in the budget, had said that even individuals and HUFs which are engaged in a business and profession would be come under the net. This meant that anyone, including the neighbourhood grocer to an accountant who had even one employee, would be liable to pay FBT. Tax experts had pointed out that every law has a minimum exemption criteria so that the cost of collecting the tax does not top the actual revenue. Another worry that has been expressed is that charitable trusts which would normally be tax-exempt under the Income Tax Act would also be covered under the FBT because they would be covered under the head of 'association of persons or a body of individuals'. However, it is now likely that the definition of employer would exclude funds, trusts or institutions which are exempt under Section 10(23C) or Section 12AA of the Income Tax Act. Section 10(23C) deals with the exemption of certain educational institutions and hospitals. According to the section, any income of notified charitable trust or institutions for public religious purpose or wholly for religious and charitable purpose would be exempt from tax. Similarly, a university or other educational institution existing solely for educational purpose and not for the purpose of profit, along with hospitals or other institutions existing solely for philanthropic purpose and not for the purpose of profit, would not have to pay tax. In addition, most small trusts are registered under Section12 AA of the Income Tax Act, by which they can claim exemption of the income earned, out of which 85% has to be applied for charitable or religious purposes.

Definition of 'employer' holds key to FBT

The sword of the fringe benefit tax (FBT) that was hanging over the head of individuals conducting business or engaged in a profession, as well as charitable trusts, is expected to be lifted in the amendments to the finance bill.

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