Fringe benefit tax to hit employees with company cars

The new perquisite rules have been notified and are applicable from April 1,2009, for the current financial year. There is significant difference in respect of  the taxability of the car benefit under the Fringe Benefit Tax (FBT) regime vis-à-vis the perquisite taxation.

FBT regime

Under FBT, a fringe benefit was deemed to have been provided by the employer to its employees for the expenditure incurred and/or payment made for repair, running (including fuel), maintenance of the motor car and the depreciation thereon. Therefore, irrespective of whether the car was owned by the employer or by the employee, the expenditure incurred by the employer or the expense reimbursed to the employee was subject to FBT.

Twenty per cent of such expense incurred/reimbursed was considered to be the fringe benefit, which was liable to tax at 30% plus surcharge and cess, as applicable. Hence, the effective tax on the expenditure incurred used to be 7% approximately of the expenditure incurred.

New perk rules

Under the new perquisite rules, a distinction is to be made between the car owned by the employer and the car owned by the employee, as the value of the tax perquisite in the two scenarios varies considerably. Even though there could be different permutation and combination, under which the car benefit could be provided by the employer to the employee, this article primarily focuses on two scenarios where the car is either owned by the employer or employee and the car expenses are met/reimbursed by the employer.

Latest books of facts on FBT April 2009

Just click here:FBT BOOK