Foreign nationals working in India will be exempt from fringe tax

Foreign nationals working in India will be exempt from fringe benefit tax (FBT) on the cost of transportation from their residence to the workplace, according to a Supreme Court ruling. Responding to a petition filed by an Australian firm, R&D Falcon (A) PTY, the apex court overruled an earlier decision by the Authority for Advance Ruling (AAR), a quasi judicial body for resolving tax disputes involving foreigners.

The Australian company, which is in the business of mobile offshore drilling rig (MODR), had to transport employees from their residence abroad to their workplace — the offshore drilling site in India. The question that had cropped up was whether the transportation cost from their residence outside India was liable for FBT.

Under the existing FBT provisions, the conveyance paid to the employees from their place of residence to the work place is exempt from taxation. The court dealt with the question as to whether the same is applicable in the case of employees outside India.

The apex court ruled that `residence’ mentioned under Section 115WB(3) of the Income Tax Act, which provides for exemption from FBT for transportation of employees from residence to workplace, should not be restricted to India. It should apply to transportation of employees outside India, too. Sudhir Kapadia, executive director, tax and regulatory Services, KPMG, said, “With this judgement all such expenses become exempt from FBT.”

Earlier, the Australian company had approached AAR for a decision on this issue. When the latter held that such expenses were taxable, the company moved the Supreme Court.

FBT was introduced in the Finance Bill, 2005.