The Hindu Business Line : Finance Ministry issues clarificatory circular on FBT

The Finance Ministry late on Monday evening came up with a clarificatory circular explaining the provisions of the fringe benfit tax (FBT) that was introduced in this year's budget.

The explanatory notes to the FBT provisions include a frequently asked questions (FAQ) section that addresses many crucial issues. Over 100 questions regarding various doubts of the trade and industry on the FBT provisions have been answered.

It has particularly clarified that employer-employee relationship is a pre-requisite for levy of FBT. On whether FBT is payable by an entity having no employee, the circular says that "an entity that does not have any employee on its rolls would not be liable to FBT".

In effect, law firms having retainer relationship arrangements and no employees will not be liable to FBT.

On whether a company would be liable for FBT in respect of "out of pocket expenses" - expenses incurred by the company for travelling, hotel etc while executing an assignment for its client - reimbursed by the client, the circular states that the company is liable to FBT in respect of such expenditure as the expenditure on travelling, hotel is incurred by the company and not by the client.

However, the client would not be liable to FBT for such expenditure. On whether FBT is applicable on foreign companies , the CBDT has said it would be applicable to those foreign companies that have employees based in India. Similarly, FBT would be applicable to liaison offices if they have employees based in India.

On whether foreign companies sending their employees on tour to India are required to pay FBT on their travel cost particularly when they are not subject to income tax in India, the CBDT has said if a foreign company is not an employer in India (no employees based in India), it is not liable to FBT in India.

The CBDT circular has also said an employer is liable to FBT if it is engaged in business or profession or any activity, whether or not such activity is carried on with the object of deriving income, profits or gains.

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