Finance Minister Pranab Mukherjee's proposal to abolish Fringe Benefit Tax (FBT) will shift the burden of tax to employees from employers, say experts.
Bowing to the longstanding demand of India Inc, Mukherjee had announced the abolition of FBT on certain expenses borne by employers like travel and hospitality to their employees in the conduct of their work, which had been clubed with executive perks by his predecessor P Chidambaram in 2005-06 (See: Below-the-belt tax blows softened) , in the union budget for 2009-10 presented on Monday. (See: Budget does away with Fringe Benefit Tax)
As a result of the abolition of the FBT, professionals who enjoy perks such as rent-free accommodation, travel, cars, gifts, and club memberships will now have to pay tax on the value of these benefits from their pockets.
Prior to the introduction of FBT by then finance minister P Chidambaram in 2005-06, employees used to pay tax on certain perquisites, in accordance with their tax slabs.
However, with the introduction of FBT, the tax incidence on perks shifted to the employer. This is set to change yet again. The removal of the FBT means that perquisites will be taxed in the hands of employees at the rate of tax applicable to them.
Though, the rules are not yet clear. The ministry is yet to come out with the valuation rules applicable to perquisites. Only after that the exact impact of abolition of FBT on employees can be calculated, said a tax expert.
The fine print in budget documents indicates that the government is coming out with a new section to replace FBT, he pointed out.