It’s not often that the taxman comes to sting you five-and-a-half months after the budget speech. But finance minister Pranab Mukherjee’s decision to abolish the fringe benefits tax (FBT) last July is only now being clarified by the taxman, and the net result is that you will pay more tax. Not everybody, though. The abolition of FBT affects those taxpayers whose salaries have a heavier weighting of perquisites like official accommodation, servants, car allowance, company credit card, and employee stock option plans (esops), among other things.

The change comes in with retrospective effect from April 1, 2009. This means your employer will start deducting tax due for the whole of this financial year in the last four months — starting December. So expect a pinch from this month. “We were hoping that the changes would be applicable prospectively. But these are applicable from April 1, 2009, which means retrospectively,” says Parikshat Suri, chief financial officer, Jones Lang La Salle Meghraj, a real estate consultancy.

If, for example, you are using a company-owned car and the company meets the running expenses, Rs 1,800-2,400 per month will get added to your salary as perquisite which will be taxed at 30.9% if you are in the top bracket. The lower amount of Rs 1,800 will be added in case the cubic capacity of your car engine does not exceed 1.6 litres; for bigger cars, the higher amount will apply.

Accommodation provided by a company will also be treated as a perquisite and added to your taxable salary. A Central Board of Direct Taxes (CBDT) notification says that the value of the perquisite will be “15% of salary in cities having a population exceeding 25 lakh, 10% of salary in cities having population greater than 10 lakh and not exceeding 25 lakh and 7.5% in other areas.” (Salary means basic salary, plus allowances and bonuses. It does not include the dearness allowance and contributions made by the company towards the provident fund.) The higher figure of 15% applies to almost all cities — from Mumbai and Delhi to Bangalore, Pune, Ahmedabad and Jaipur.

The CBDT notification converts the earlier employer-based tax system (FBT) into an employee-based one, says Sandeep Shanbhag, director of Wonderland Investment Consultants, a tax and financial planning firm. This has the net effect of raising taxes.

Explains Shanbhag: “When your employer was paying the FBT, even if this cost was passed on to you, the effective tax rate was often as low as 6.8%. Now these perquisites will be added to your salary, so you will end up paying tax at the level of your bracket. If you are in the top bracket, this means 30.9%.”

Ameet Patel, partner at Sudit K Parekh & Co, says that “most of the rules announced now are the same as the pre-FBT days. For a small car, the taxable amount earlier was Rs 1,200 per month and now it has been made Rs 1,800. For a big car, it was Rs 1,600 earlier and now it will be Rs 2,400 per month. Similar changes have been made on expenses for payments made for drivers, which has been increased from Rs 600 to Rs 900 per month.”

Employee stock options have also been brought under the ambit of perquisites. Also, any benefit resulting from a sweeper, a gardener, a watchman or a personal attendant on the rolls of the company has been made taxable.

Other than this, benefits arising from free or concessional education, either paid for or provided to any member of the family by the company, will also be taxed as a perquisite. Interest-free loans will also be taxed. Gifts greater than Rs 5,000 in value, club fees and credit cards given by the company shall also be deemed perquisites. In the case of credit cards, the membership fees and annual fees will be added to the taxable income for the year. All expenses made on the card will be taxable unless, of course, the employer gives a certificate that such expenditure is being incurred for official duties only.

Over and above this, movable assets also come under the ambit of tax. “Movable assets would include fax machine, printer, air conditioner, etc, (except laptop), where either 10% of the cost of the machine or the actual rent paid will be applicable,” says Patel.

The good part is that some allowances have still been left outside the definition of perquisites. Mehul Sheth, a chartered accountant, says: “When FBT was abolished during the budget, people thought that some part of official expenses – such as telephone expenses, tour and travel bills – would be added as expenditure to the employee and taxed as a perquisite. But this has not happened.”

The finance minister has delivered small mercies, after all.

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