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FBT expected to be phased out

Jul 06, 2009

FBT (Fringe Benefit Tax) is expected to be phased out in today's budget. Elimination of FBT might mean huge relief to Companies who apparently have been paying double tax, first on the income and then again on the specified expenses.

 

However, this could also mean the doom for employees using FBT to structure their salaries with expense reimbursement components. With the elimination of FBT, employees might end up paying more tax as it would mean moving from the current FBT regime to perquisite taxation mode.

 

An example here would be as follows:

 

Suppose Mitesh gets gift coupons of upto Rs. 50,000 as a salary component. Currently with the FBT method he would be paying a tax of Rs. 8,500 whereas with gift being taxed as perquisite, Mitesh might end up paying Rs. 17,000 as tax.

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