Govt may soften FBT blow for salaried class

NEW DELHI: The government may extend a helping hand to India���s two-crore strong salaried class in September 2009 when the burden of paying fringe benefit tax (FBT) will be moved from the employers��� shoulders to the employees���, as envisaged in Budget 2009.

According to a finance ministry official, the new rules being framed by the revenue department could allow increasing the non-taxable portion in the conveyance allowance, which at present stands at Rs 800 per month. He, however, refused to elaborate whether the new rules would bring about such tax exemption limit for other perquisites as well.

As things stand, the employees would feel the heat during the last seven months of the current fiscal as the enhanced tax liability of the first five months would reflect in the tax deducted at source of employees from September onward, thereby reducing their monthly take-home salary.

Consultancy firm PricewaterhouseCoopers��� (PwC) executive director Ashutosh Chaturvedi said the abolition of FBT would put the burden not only on employees but also on the administrative cost of the employers due to issues of multiple compliance.

���Given the current economic situation, where salaries of employees are already under stress, it is important that they are not put in an adverse situation again,��� he said.

The FBT allowances include allotment of shares free of cost or at a concessional rate, free or concessional tickets to employees for their private journeys, reimbursement on conveyance, entertainment, hospitality, food and beverages, paid vouchers to name a few.



Another finance ministry official, however, said new rules could bring in some relief as it would be unfair to add all perquisites to one���s taxable income and deduct a flat 30.9% of income as taxes if he is in the uppermost tax bracket. After all, effective rate at which FBT was charged during the last three years from employers was just 6.8%.

As the reimbursement allowances such as conveyance, phone bills and meal vouchers would now be added to the employees��� total taxable income after the formal notification of the abolition of FBT comes, the tax liabilities of employees in private sector and PSUs would go up substantially. The government employees, however, won���t be impacted much as their perquisites are a bare minimum.

With the recent Budget announcing the abolition of FBT with effect from assessment year FY10-11 (the current fiscal) taxes on perquisites which were paid by the employers during the last three years, would now be borne by employees themselves unless the new rules ensure that the entire burden don���t fall on the employees. The new rules are expected to be notified next month.