New Delhi, March 2: The Congress-led government plans to soften the blow of the fringe benefit tax by not imposing it on superannuation benefits.
Finance minister P. Chidambaram has slapped the fringe benefit tax on a range of deemed perks that companies gave its employees, including contributions made by employers to group superannuation funds on behalf of employees.
The move had caused consternation among corporate executives who enjoy the benefit. The government also looks set to reduce the base for calculating the fringe benefit tax (FBT) so that the blow is lighter.
Chidambaram has already stated that promotion and publicity expenses incurred by firms could be kept out of the new FBT.
Top North Block officials said the government would also consider either scrapping or reducing the base for calculating some of the other FBT tax on items like guest houses, conferences, conveyance, foreign travel and hotel expenses. Items like conveyance, hotel expenses and foreign travel will either be scrapped or clarified to narrow their scope.
Under the formula enunciated in the budget, the value of fringe benefits for hotel stay and club facilities is 50 per cent of the cost and in the case of conveyance it is 25 per cent of the sum defrayed.
Officials said the base could be reduced by accepting that instead of 50 per cent of expenses on an item that was meant for employee benefit, the fringe benefit value could be determined at a lower level of say 20 per cent.
However, officials said the "principle of this tax is not in dispute and we will stay with it, though in a reduced manner."
Chidambaram told industry captains today at a meeting organised by the Federation of Indian Chambers of Commerce and Industry that 'there is no intention to tax legitimate business expenditure. I have asked my people to look at the entries to see if any unintended anomaly has crept in that needs to be addressed.'
The minister added, 'We must wait for final shape of the finance bill to emerge.' Officials said the final shape will change 'quite a lot'.
Their intention they said was to plug loopholes by which corporate houses incentivised employees and not to tax 'genuine business expenses'.
Rattled by the flurry of criticism on this count, North Block has already started eliciting opinion from experts and opinion makers in order to clean up their act.
Even the sedate Institute of Chartered Accountants of India (ICAI) has attacked the FBT, specially on the superannuation issue. This, officials admit, raises the spectre of litigation 'very strongly'.
Superannuation, which is not treated as a fringe benefit but rather as a deferred income paid by the employer after an employee retires or leaves the organisation. Since it is a deferred income, it is taxed when the employee receives it after retirement.