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Rediff.com  » Business » FBT gone? Your take-home pay may be less now!

FBT gone? Your take-home pay may be less now!

Last updated on: July 07, 2009 18:58 IST

Fringe Benefit Tax was introduced in 2005 to be charged on the value of certain benefits offered by employers to their employees.

However, it turned out that the amount of tax collected by the government was not enough and the pain caused to corporates by way of compliance and paperwork was enormous. Under the 2009-10 Budget, FBT has been abolished.

Announcing the decision of the government to do away with FBT, Finance Minister Pranab Mukherjee said in his Budget speech that "this tax has been perceived as imposing considerable compliance burden. Empathising with these sentiments, I propose to abolish the fringe benefit tax."

While the abolition of FBT is going to be received very favourably by the finance departments at companies, the impact on your personal finances might not be the most optimal for you.

The removal of the FBT means that perquisites will be taxed in the hands of employees at the marginal rate of tax applicable to them...we will have to await the valuation rules applicable to perquisites.

All about tax proposals

Here's some analysis to show you why.

As you will see in the table below, we have considered the case of an employee -- earning an annual CTC (cost to company) of Rs 750,000 -- under the current scenario and the proposed scenario. The annual fringe benefits offered to the employee are just under Rs 300,000.

Assuming that under both scenarios the taxpayer is using their full Rs 1 lakh (Rs 100,000) 80C deduction, the net annual taxable salary under the existing scenario is Rs 368,000 and under the proposed scenario is Rs 644,996.

The new tax slabs

You will see that under the existing scenario, the take-home salary (i.e., CTC less income tax and FBT on fringe benefits provided) is Rs 700,418 (93% of CTC) whereas under the proposed scenario it will be Rs 649,576 (87% of CTC).

As this highly stylised example demonstrates, your personal taxation might be worse off under the proposed rules.

 

EXISTING

PROPOSED UNDER BUDGET

ACTUAL (Rs.)

TAXABLE

ACTUAL (Rs.)

TAXABLE

Basic Salary

25,000

25,000

25,000

25,000

House Rent Allowance

10,000

10,000

10,000

10,000

Special Allowance

4,000

4,000

4,000

4,000

Fringe Benefits from Employer

 

 

 

 

Club Membership

4,000

-

4,000

4,000

Tour and Travel Reimbursement

5,000

-

5,000

5,000

Hotel / Logding Reimbursement

2,000

-

2,000

2,000

Personal Conveyance Reimbursement

10,000

-

10,000

10,000

Gift Vouchers

2,500

-

2,500

2,083*

Monthly CTC

62,500

 

62,500

 

Annual CTC

750,000

 

750,000

 

Taxable Salary Per Month

 

39,000

 

62,083

Income Tax Computation

Total Annual Taxable Salary
(Per Month x 12)

 

468,000

 

744,996

Less: 80C Deduction

 

100,000

 

100,000

Net Taxable Salary

 

368,000

 

644,996

Tax on Above (assuming applicable tax slabs)

 

22,454

 

100,424

Take-home Salary

CTC

 

750,000

 

750,000

Less: Deductions by payroll

 

 

 

 

Income Tax

 

22,454

 

100,424

FBT on Fringe Benefits Provided**

 

27,128

 

Take-home salary

 

700,418

 

649,576

Take-home pay as a percentage of CTC

 

93%

 

87%

* Gifts up to Rs 5,000 P.A. is exempt.

** This is paid by the employer, but the charge is passed on to the employee 

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