Frequently Asked Question on fringe benefit tax (FBT) PART- 4

76. Whether expenditure incurred on prizes/rewards to employees for achievements is liable to FBT?

Any expenditure incurred on prizes/rewards to employees for achievements would fall within the scope of clause (E) of sub -section (2) of section 115WB relating to employee welfare and accordingly be liable to FBT.

77. Whether expenditure incurred on transportation facility provided to the children of employees is liable to FBT?

The expenditure incurred for the purpose of providing transport facility to the children of employees is in the nature of expenditure on employees’ welfare within the meaning of clause (E) of sub-section (2) of section 115WB. Accordingly, such expenditure is liable to FBT.

78. Whether the reimbursement in respect of car expenses on the basis of bills submitted and driver’s salary on the basis of a declaration provided, booked as ‘salary’, though treated as non-taxable reimbursement, attract FBT?

The reimbursement in respect of car expenses on the basis of bills submitted and driver’s salary on the basis of declaration provided fall outside the scope of ‘salary’ within the meaning of clause (1) of section 17 of the Income-tax Act.

Therefore, any expenditure towards such reimbursement is effectively expenditure incurred by the employer for the purposes of conveyance, tour and travel. Since the expenditure for such reimbursement is for the purposes referred to in clause (F) of sub-section (2) of section 115WB relating to conveyance, tour and travel, and is liable to FBT.

79. On some occasions, employers prefer to give a per-diem allowance for meeting the expenditure on lodging and boarding rather than making payments on actual basis. The per-diem allowance is exempt from tax under section 10(14). Would this be subject to FBT?

Since the per-diem allowance is paid for the purposes of use of hotel, boarding and lodging facilities, it would fall within the scope of clause (G) of sub -section (2) of section 115WB. However, the employees will not be liable to pay income tax on any surplus accruing to him from such allowance.

80. Where the business consists partly of software development and partly of manufacture of say, FMCG products, whether the benefit of valuation at a lower rate of 5% instead of 20% of conveyance and travel expenditure for charge of FBT be available, and if yes, on what quantum?

FBT is a tax qua employer. Therefore, the expenditure of the nature referred to in clauses (A) to (P) of sub-section (2) of section 115WB is to be taken into account with reference to nature of the business.

Accordingly, the expenditure relatable to the business of manufacture or production of comp uter software would alone qualify for lower rate for valuation of fringe benefits relating to expenses referred to in item (F) and (G) of sub-section (2) of section 115WB. Expenditure relating to manufacture of FMCG products would be liable to FBT in accordance with sub-section (1) of section 115WC of the Income-tax Act.

81. Whether employees will be liable to income tax on the perquisite value of motor car provided by the employer in terms of rule 3(7)(vii) of the Income tax Rules relating to use of ‘movable asset’.

Since expenditure on running and maintenance of motor cars is liable to FBT, the employees will not be liable to income tax on the perquisite value of motor car provided by the employer in terms of rule 3(7)(vii) of the Income tax Rules relating to use of ‘movable asset’.

82. Whether FBT is payable on any rent paid or payable for hiring or leasing of motor cars?

Rent paid or payable for an operating lease of a motor-car is expenditure for the purposes of conveyance, tour and travel. Accordingly, it shall be treated as expenditure within the scope of clause (F) of sub -section (2) of section 115WB.

However, rent paid or payable for a financial lease of a motor-car is in the nature of expenditure on running or maintaining of a motor-car. Therefore, such rent shall be treated as expenditure within the scope of clause (I) of sub-section (2) of section 115WB.

83. Whether the amount of depreciation on motor-car or any other asset should be the amount calculated as per the Income-tax Act or as per commercial accounting? If tax depreciation, how is the same to be computed in view of the concept of block of assets?

The depreciation on the motor car or any other asset for the purposes of FBT shall be the depreciation computed under the provisions of section 32 of the Income-tax Act. Further, such amount shall be the whole of the amount of depreciation in respect of the relevant block of assets.

For example, for the purposes of depreciation on motor-car, the amount of depreciation relating to the block of assets – motor-cars – shall be included within the scope of clause (H) of sub-section (2) of section 115WB.

84. Whether expenditure by way of interest on loans taken for purchase of cars is liable to FBT?

Interest on loans taken for purchase of cars falls within the scope of clause (H) of subsection (2) of section 115WB relating to repair, running and maintenance of motor cars. Accordingly, expenditure by way of interest on loans taken for purchase of cars is liable toFBT.

85. Whether expenditure on repair, running and maintenance of delivery/ display vans, trucks/lorries, ambulances and tractors is liable to FBT?

Delivery/ display vans, trucks/lorries, ambulance and tractor are not ‘motorcars’ within the meaning of clause (H) of sub-section (2) of section 115WB. Therefore, expenditure on the running, repair and maintenance of such vehicles is not liable to FBT.

86. Whether the amount of depreciation on the club building is liable to FBT?

Where the legislature has intended to subject the amount of depreciation on any capital asset to FBT, it has specifically provided for it as in clauses (H) and (I) of sub-section (2) of section 115WB. Therefore, in the absence of any legislative intent to subject the amount of depreciation in respect of the club building to FBT, such depreciation amount is not liable to FBT.

87. Whether salary paid to a driver of a motorcar or a pilot of an aircraft is liable to FBT?

The salary paid to a driver of motor car or a pilot of an aircraft is for the purposes of running and maintenance of motor car or aircraft as the case may be and accordingly such payment of salary would have to be classified either in clause (H) or clause (I), as the case may be, of sub-section (2) of section 115WB. Therefore, it would be liable to FBT.

88. Will fringe benefits include rent paid for garages or parking slots or airport tarmac/hanger charges?

The rent paid for garages or parking slots or airport tarmac or hanger is for the purposes of running and maintenance of motorcar or aircraft as the case may be and accordingly such payment of rent would fall within the scope of clauses (H) or (I) of sub-section (2) of section 115WB. Therefore, it would be liable to FBT.

89. Whether capital expenditure falling within the categories specified in section 115WB (2) would be covered in the scope of fringe benefits?

Expenditure on any capital asset in respect of which depreciation is allowable u/s 32 of the Income-tax Act does not fall within the scope of sub -section (2) of section 115WB of the Income-tax Act since the proximate objective of incurring such expenditure is the acquisition of a capital asset.

Therefore, such expenditure is not included in reckoning the value of fringe benefits [except depreciation on motor cars or aircrafts referred to in clauses (H) and (I) of sub-section (2) of section 115WB] and is not liable to FBT.

90. Whether expenditure for use of telephone includes (i) expenditure for use of telephone installed in the office and (ii) payment of telephone (including mobile phone) bills in the name of the company directly made by the company?

In terms of the provisions of clause (J) of sub-section (2) of section 115WB, expenditure incurred or payment made for the purposes of use of telephone (including mobile phone) other than expenditure on leased telephone lines is liable to FBT. Therefore, expenditure on use of telephones (including mobile phones) installed in the office is liable to FBT. This is so, irrespective of whether the telephone is in the name of the company or not and also whether payment for its use is made directly or indirectly by the company.

91. Will expenditure on capital items (e.g., fridges, TVs in a guesthouse be liable for FBT?

Expenditure on items like refrigerators, televisions, furniture and similar items in a guesthouse would not fall within the scope of clause (K) of sub-section (2) of section 115WB since the proximate objective of incurring such expenditure is the acquisition of a capital asset. Further, depreciation on these assets would also not be liable to FBT in the absence of any specific charge.

92. Would maintenance of a guesthouse include payment of rent for the guesthouse?

Any rent paid for maintaining a guesthouse would fall within the scope of clause (K) of sub-section (2) of section 115WB and, accordingly, is liable to FBT.

93. Whether expenditure on all guesthouses is liable to FBT or restricted to expenditure on holiday homes?

In terms of the provisions of clause (K) of sub-section (2) of section 115WB, FBT is payable on expenditure incurred for the purposes of maintenance of any accommodation in the nature of guest house other than accommodation used for training purposes. Therefore, expenditure on all guest houses is liable to FBT irrespective of whether they are used as holiday homes or not.

94. Whether the following expenses are liable to FBT: expenditure on provision of food at the guest house maintained by the employer; contract charges paid to guest house staff; and depreciation/rent of guest house building.

In terms of the provisions of clause (K) of sub-section (2) of section 115WB, any expenditure incurred for the purposes of maintaining any accommodation in the nature of guesthouse other than accommodation used for training purposes is liable to FBT.

Since the expenditure on provision of food at the guest house maintained by the employer, contract charges paid to guest house staff and rent paid or payable in respect of the guest house building, are all for the purposes of maintenance of the guest house, such expenses are liable to FBT.

As regards the taxability of the amount of depreciation on the guest house building, where the legislature has intended to subject the amount of depreciation on any capital asset to FBT, it has specifically provided for it as in clauses (H) and (I) of sub-section (2) of section 115WB. Hence, in the absence of any legislative intent to subject the amount of depreciation in respect of the guest house building to FBT, such depreciation amount is not liable to FBT.

95. Whether expenditure on meeting of employees and their families on the occasion of a festival like Navratri’ would be expenditure on festival or expenditure on employee welfare?

Expenditure on meeting/ get-togethers of employees and their family members on the occasion of any festival like Navratri’, ‘Diwali’ Id’, ‘Christmas’ or New Year’ is expenditure on festival celebrations. Such expenditure would, therefore, fall within the scope of clause (L) of sub -section (2) of section 115WB.

Expenditure on meeting/get-togethers of employees and their families on non festival occasions (including annual day), may be classified as expenditure on entertainment within the meaning of clause (A) of sub-section (2) of section 115WB or as expenditure on employees’ welfare within the meaning of clause (E) of sub -section (2) of section 115WB of the Income-tax Act. Such expenditure is liable to FBT.

However, expenditure on celebration of Independence Day and Republic Day will not be liable to FBT because they are not ‘festivals’ as normally understood.

96. Whether payment of entrance or membership fee of a club or health club or similar facility would be expenditure incurred on use of such facilities?

Entrance or membership fee of a club or health club or similar facility is a fixed levy allowing for use of some basic club facilities (like the lounge facilities). Therefore, such payments are also expenditure incurred on use of club or health or similar facilities and accordingly liable to FBT.

97. Whether expenditure on gifts under trade schemes or for promotion of company’s products to distributors/retailers is liable to FBT?

Ordinarily, a gift is defined as anything given or presented without consideration. Therefore, expenditure on gifts under trade schemes or for promotion of company’s products to distributors/retailers, falls within the scope of the provisions of clause (O) of sub-section (2) of section 115WB and, accordingly, is liable to FBT.

98. Does a gift to customer fall under ‘sales promotion’ or ‘gift’?

In terms of the rules of interpretation of a statute, a specific provision in law overrides a general provision. Therefore, a gift to a customer, even though for the purposes of sales promotion, would fall within the scope of the specific provision of clause (O) of subsection (2) of section 115WB relating to ‘gift’.

99. Whether expenditure incurred on gifts provided to employees, on the occasion of marriage, liable to FBT?

Any expenditure incurred on gifts provided to employees, whether on the occasion of marriage or otherwise, falls within the scope of clause (O) of sub-section (2) of section 115WB and, accordingly, is liable to FBT.

100. Is a gift in kind excluded? If included, how is its valuation to be done?

As per provisions of clause (O) of sub-section (2) of section 115WB any expenditure incurred or payment made for the purposes of gift is liable to FBT. The cost to the employer of the gift would be taken into account for the purposes of valuation of such fringe benefit.

101. If, say, 8 employees are sent to an educational institution whether the expenditure on their education will fall within the scope of employee welfare or scholarship?

Ordinarily, scholarship is defined as payments to a person for pursuing education. Further, in terms of the rules of interpretation of a statute, a specific provision in law overrides a general provision. Therefore, expenditure on the education of employees sent to an educational institution, even though for the purposes of promoting employee welfare, would fall within the scope of the specific provision of clause (P) of subsection (2) of section 115WB relating to ‘scholarships’.

102. Whether FBT is payable on scholarships awarded to students and trainees?

FBT is payable on the expenditure incurred or payment for the purposes of scholarship irrespective of whether the recipient is an employee or his relative or any other person.

103. Whether FBT would be allowable deduction while computing book profit’ under section 115JB?

FBT is a liability qua employer. It is an expenditure laid out or expended wholly and exclusively for the purposes of the business or profession of the employer. However, sub -clause (ic) of clause (a) of section 40 of the Income tax Act expressly prohibits the deduction of the amount of FBT paid, for the purposes of computing the income under the head ‘profits and gains of business or profession’. This prohibition does not apply to the computation of book profit’ for the purposes of section 115JB. Accordingly, the FBT is an allowable deduction in the computation of book profit’ under section 115JB of the Income tax Act.

104. Whether expenditure incurred by the employer for the purposes of providing free or subsidized transport for journeys to employees from their residence to the place of work or such place of work to the place of residence would attract FBT?

The free or subsidized transport provided to employees for journeys from their residence to the place of work or such place of work to the place of residence is in lieu of conveyance/transportation allowance, which is not liable to FBT. Accordingly, the expenditure incurred by the employer for the purposes of providing free or subsidized transport for journeys to employees from their residence to the place of work or such place of work to the place of residence will not be liable to FBT.

105. What is the meaning of the term ‘computer software’ as referred to in section 115WC? Will it include information technology enabled services?

Clause (d) of sub-section (2) of section 115WC provides for a lower percentage for valuation of fringe benefits for the purposes referred to in clauses (F) and (G) of subsection (2) of section 115WB in the case of an employer engaged in the business of manufacture or production of computer software. In the absence of a specific definition in the said clause, the term ‘computer software’ will assume its natural meaning i.e., recording of programmes on any disc, tape or perforated media or other information storage device.

Accordingly, information technology enabled services will not fall within the scope of the term ‘computer software’ for the purposes of section 115WC of the Income-tax Act.

106. What is the meaning of the term business of construction’ – whether only civil construction or even other construction work like construction of plants, telecommunication infrastructure, etc. are also covered?

The term ‘business of construction’ must be understood by giving the ordinary English language meaning to the words. Hence, all activities involving construction would be covered within the scope of the term business of construction’ referred to in section 115WC of the Income-tax Act.

107. Whether excess advance tax paid for the preceding quarter can be adjusted against advance tax for the subsequent quarter(s)?

Any excess advance tax paid for the preceding quarter can be adjusted against the advance tax for the subsequent quarter(s).