PF & gratuity escape FBT net

NEW DELHI: The fringe benefit tax (FBT) on superannuation funds is here to stay. However, statutory contributions made by the employer to provident funds and gratuity would not be taxed, finance minister P Chidambaram said on Thursday.

The government will reconsider the tax levied on cash withdrawals from current accounts if the levy failed to check generation of black money. However, this is unlikely to happen in this fiscal. Mr Chidambaram has also promised to further simplify the fringe benefit tax (FBT) if corporates reported difficulties with its implementation.

He also assured the Upper House that there would be no harassment whatsoever of corporates on treatment of expenses for calculating FBT.

Contributions to superannuation funds made by employers are voluntary contributions made to benefit senior managers and will therefore be taxed.

Replying to the debate on the Finance Bill 2005 in Rajya Sabha here today, finance minister P Chidambaram said: “The objective of the banking cash transaction tax is not to raise revenue but establish tax trial. I am confident we will succeed. If we fail, we will reconsider.�

The tax is not to be levied for cash withdrawn from savings account as per the amendments to finance bill passed by both houses of Parliament. Withdrawals from current account by individuals in excess of Rs 25,000 will attract a levy of 0.1% with effect from June 1, 2005.

For businesses the threshold for the levy has been fixed at Rs 1 lakh. He said the finance bill was a “reasonable package and we have given concessions, we have given exemptions. We have made adjustments wherever there was valid criticism.

Necessary corrections were made in the cash withdrawal�. “Hum Hai Naa,� Chidambaram said adding, “we are all here. We will address the problem, if there is any� on these two new taxes which were widely criticised by MPs during the debate.

Referring to the criticism of security transaction tax last year, Mr Chidambaram said one year after its implementation everyone was happy that it had brought discipline into the stock exchanges and curbed — to a large extent — the widely prevalent ghost transactions by stock brokers using multiple terminals.

He said that the government did not intend to track genuine cash withdrawals from banks of Rs 25,000-50,000 but would keep a trial of large cash withdrawals made for nefarious purposes like arms smuggling, smuggling, property transaction and all illegitimate and questionable activities.