Rationalisation of the provision of the Fringe Benefit Tax

Sub-section (2) of section 115WB of the Income tax Act provides that where an employer incurs any expenditure, inter alia, for the purposes of entertainment, hospitality, conference, and sales promotion (including publicity), such employer shall be deemed to have provided fringe benefits to its employees. Section 115WC of the Income-tax Act provides for valuation of the fringe benefits provided by the employer.

With a view to rationalizing the provisions of Fringe Benefit Tax, the following amendments to sub-section (2) of section 115WB of the Income-tax Act have been made-

(i) Any expenditure on or payment through pre-paid electronic meal card shall also be excluded from the hospitality expenditure for calculation of the value of fringe benefit. Such electronic meal card should not be transferable, should be usable only at eating joints or outlets and should fulfil such other conditions, as may be prescribed. These conditions have subsequently been provided vide insertion of new Rule 40E in the Income-tax Rules, 1962.

(ii) Explanation to clause (E) has been amended to provide that any expenditure incurred or payment made, to –

• provide crèche facility for the children of the employee; or
• sponsor a sportsman, being an employee; or
• organize sports events for employees,

shall not be considered as expenditure for employees’ welfare for the purpose of calculation of the value of fringe benefits.

(iii) Clause (K) has been omitted. Hence, any expenditure on or payment made for maintenance of any accommodation in the nature of guest house shall not be included for valuation of fringe benefits.

Further, clause (c) and clause (d) of sub-section (1) of section 115WC have been amended so as to provide that the value of fringe benefits on account of expenditure on festival celebration shall be twenty per cent as against the existing rate of fifty per cent.

Applicability – These amendments have been made applicable with effect from 1st April, 2009 and shall accordingly apply in relation to assessment year 2009- 10 and subsequent assessment years.

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