What Is Fringe Benefit Tax?

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  • 07 Feb 2023

Fringe benefit is anything which is offered by the employer to his/her employee that is not a part of the salary. This consists of things such as tickets, reimbursements, superannuation contribution, company vehicles etc. Hence, if an employer spends on things like the entertainment costs, free of cost share allotments or allotting them at lower rates and hospitality expenses etc. then it is regarded as fringe benefit.

Fringe benefit tax is a type of tax, which is levied on the employees for the fringe benefits that they receive from their employers. The tax was introduced in the financial year 2005-06. The fringe benefit tax was earlier supposed to be given to the government by the business owners or the employers. However, in 2009, after a lot of debate, the Finance Act abolished the fringe benefit tax India-wide. However, this abolishment came into effect from financial year 2010-11.

As far as the fbt tax rate is concerned, when in application, it was fixed at 30 percent of the benefit’s value that was offered to the employee by the company.

When being used, the fringe benefit tax exemptions available to the employers included:

  • Exemption on the amounts that the company paid to professionals for promoting their company as well as the goods & services sold by them.
  • The expenses that the employer made as part of providing transportation to its employee while travelling to office as well as back to their homes.
  • In case the employer was contributing towards superannuation funds on behalf of their employee, then they could enjoy an exemption of around 1 lakh rupees for every single employee they are paying for.
  • Expenses that the employer may incur as part of offering the employees entertainment or travel solutions such as outings or games etc.

Fringe Benefit Tax Today

After the fringe benefits tax was abolished the employers were much relieved as they no longer had to bear the burden of paying the fbt tax. However, the tax returned in a different form and it is now being included within the income of an employee. It is now being extracted from the salaries of every employee’s in the form of income tax. The deduction is happening on the basis of the tax slab that they fall under.

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