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Industry & Economy - Income Tax


Tweaking the FBT

Fringe benefit tax (FBT) was introduced as a revenue raising measure. FBT can be justified on the principles of horizontal equity and vertical equity.

Nevertheless, I have reviewed it with an open mind. I have also taken on board the views expressed by the apex chambers of commerce. I propose to make the following changes in chapter XII-H of the Income Tax Act:

  • Value the benefit in the form of `tour and travel' at 5 per cent instead of 20 per cent;

  • Value the benefit in the form of `hospitality' and `use of hotel boarding and lodging facilities', in the case of airline companies and shipping industry, at 5 per cent instead of 20 per cent;

  • Exclude the expenses on free samples of medicines and of medical equipment distributed to doctors;

  • Exclude the expenses incurred on brand ambassador and celebrity endorsement; and

  • Prescribe a threshold of Rs 1,00,000 under section 115WB(1)(c) so that only a contribution by an employer to an approved superannuation fund in excess of Rs 1,00,000 per year per employee will attract FBT.

    Under Section 80C, there is already an exemption up to Rs 1,00,000 for contribution by an employee to an approved superannuation fund.

    Honourable Members will note that, under these two provisions, there can now be a tax-exempt contribution up to Rs 2,00,000 per year for the benefit of an employee.

    This allowance, I believe, is generous enough in the case of an overwhelming majority of employees.

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