Fringe Benefits are the benefits that employers offer to their employees and monthly salary. They are often included while calculating an employee’s cost to the company (CTC).Until the beginning of the financial year 2010-2011, employers were required to pay taxes to the government on their fringe benefits. However, they were abolished by the government with effect from FY11. Read on to know everything about what is fringe benefits tax and other key details relating to fringe benefits.
Fringe Benefits Tax Meaning
Fringe benefits tax meaning refers to employee benefits provided by an employer over and above the defined salary of their workforce. There used to be a fringe benefits tax till the start of the financial year 2010-2011; however, after a long debate, the Finance Bill 2009 abolished its application. The fringe benefits tax rate used to be 30% until 2009-2010. Today, certain fringe benefits are included in an employee’s gross income and are thus subject to income tax.
Why Do Employers Offer Fringe Benefits?
Employers offer fringe benefits to their employees to meet the following objectives –
- Boost Employee Motivation Levels – Employees are the most important resource of any organisation. And the employer needs to ensure that their employees are highly motivated to do the work. By offering fringe benefits, employers convey a message that they care for their employees, which helps them push their morale levels and thus productivity levels high.
- Inculcate a Feeling of Belongingness – It is very important for a business that its employees treat it like their own, especially when it comes to decisions relating to costing. This is true for senior-level employees, who generally take the company’s important decisions. By offering qualitative benefits via fringe benefits, employers can inculcate a feeling of belongingness in their employees.
- Keep Attrition Rates Low – In today’s competitive world, it is not easy to attract and retain good talent. However, it is also true that the employees who feel loved and cared for rarely switch their jobs. Thus, by offering fringe benefits, an employer can keep attrition rates low. It also helps save recurring recruitment costs.
- Brand Value Appreciation – Employees make the best vouchers for a company. If an employer treats them well and takes care of their needs, the employees also, in return, spread the good word about the company. This helps the organisation build a reputed brand name in the industry everyone wants to work with.
Who is Liable to Pay Fringe Benefits Tax?
The liability for the payment of the fringe benefits tax used to rest with the following types of employers –
- Local authorities
- Artificial juridical persons
- Associations of persons
- Body of individuals excluding trusts and institutions.
How Are Fringe Benefits in India Taxed?
The government used to tax employers for providing fringe benefits to their employees at the rate of 30%. However, now they are considered a part of an employee’s gross income and thus attract tax rate as per the tax slab in which the employee falls.
Fringe Benefits Tax Exemptions
Until fringe benefits tax (FBT) was applicable, the following exemptions were available to the employers –
- No fringe benefits tax could be levied on the sums of money paid by a company to professionals to promote the organisation or sell its goods and services.
- The commutation expenses borne by the employer for providing conveyance facility to their employees were exempt from the treatment of fringe benefits tax.
- An exemption of up to INR 1 Lakh was available to employers on their amounts towards an employee’s superannuation funds.
- No fringe benefits tax was levied on expenses incurred by an employer for providing travel or entertainment benefits to their employees, such as office trips, movie visits, games, etc.
Assessment of Fringe Benefits Tax Today
The government of India does not impose any tax on the fringe benefits provided by employers to their workforce. The abolishment of fringe benefits taxes came as a boon for the employers and a bane for the employees receiving it. Today, all monetary fringe benefits available to an employee get included while computing their annual income. And thus, attract tax as per their income tax slab.
List of Taxable Fringe Benefits
The following fringe benefits get included in the gross income of the employee during the calculation of the same for taxation purposes –
- Monetary bonuses
- The vehicle provided by the employer
- Travel allowances
- Relocation expenses
- Frequent-flyer rewards earned during business trips and converted into cash
- Term Insurance
List of Non-Taxable Fringe Benefits
The following fringe benefits fall outside the purview of income tax rules and thus do not attract any tax –
- Employee Stock Options (ESOPs)
- Gratuity benefits
- Education expenses incurred for employee’s skill enhancement
- Employee discounts
- Food vouchers/meals
- Health benefits
- Group term insurance
- Conveyance expenses
Fringe Benefits Tax Calculator
Since fringe benefits tax is no longer applicable in India, there is no fringe benefits tax calculator in the country. However, since they are not treated as a part of the employee’s gross income, you can use an income tax calculator to assess your tax liability.
What Is a Cafeteria Plan?
Cafeteria plan consists of various pre-tax benefits provided to the staff. Cafeteria plan is flexible as compared to other tax plans. Moreover, many other benefits like insurance, retirement plan, etc. comes with cafeteria plan which makes it flexible and likeable. Employees have the freedom to choose their benefits according to what suits them the best, which is why cafeteria plan can be time consuming.
Classification Of Employer for FBT
Classification of employer for TBT is as follows:
- A Company
- A Firm
- Local Authority
- Alliance of an individual
Payment Process of The FBT to Government
Payments of FBT are supposed to be made in advance, before the beginning of a new financial year. 30% of the amount has to be paid in advance, or during the quarter, which is on or before 15th of each month.
If for any given reason the tax payment of fringe benefits in India is delayed, 1% of interest rate is applied.
Procedure for Filing FBT Return
There are two methods you can opt for the file for FBT return. Either electronically, where you need to enable SBR software, or you can contact an agent and ask them to complete the process. Electronic method takes 2 weeks for completion of the process.
Other method is through paper lodgments, which is processed in 10 weeks.
In today’s competitive hiring environment, it has become necessary for employers to offer varied fringe benefits to their employees. This helps them attract new talent and retain good existing talent. The government no longer levies fringe benefits tax on the employer. However, the employee now bears the same by way of income tax.
An employee does not pay a tax separately on the fringe benefits received by them from their employer. However, some fringe benefits like monetary bonuses, travelling allowances, relocation allowances, etc., are included in the employee’s gross income in the income tax calculation.
The government abolished the fringe benefits tax in the Finance Bill 2009 and made the abolishment effective from the financial year 2010-2011.
Yes, since conveyance allowance is offered over and above your base salary, it is a fringe benefit.
Yes, the cost to the company (CTC) is different from the base salary that you receive. The CTC is the sum of your base salary and the fringe benefits your company offers.
Yes, corporate software offered by your company for business purposes is exempt from income tax calculations as it is treated under the operational expenses incurred by the company.
Certain fringe benefits include- medical leaves, retirement plans, worker’s compensation, etc.
Employers are supposed to pay fringe benefit tax.
Fringe benefits tax is added in the income tax payments.
Also Read: Tax Assessment Year