Everything About Fringe Benefit Tax

What are Fringe benefits?

Fringe benefits are additional compensation employers provide their employees besides their regular salary. Fringe benefits may include health insurance, retirement plans, tuition assistance, childcare, paid leave, transportation, entertainment, etc. Fringe benefits are often used to attract and retain qualified staff and motivate and reward them for their performance. Fringe benefits may have tax implications for both the employer and the employee, depending on the type and value of the benefit.

What is Fringe Benefits Tax?

The Fringe Benefit Tax meaning that employers are responsible to pay for certain benefits they provide to their employees. Fringe benefits include car parking, entertainment, health insurance, and loans. The Fringe Benefits Tax is separate from income tax and is computed on the taxable value of the fringe benefits. It was set at 30 per cent of the cost of benefits the company paid and it was aimed to bring under the tax net those benefits that were previously out of it

What are the types of fringe benefits?

There are two types of fringe benefits:

• Fringe benefits required by law
  Fringe benefits required by law are non-cash compensations employers must provide their employees. These benefits may include social security, unemployment insurance, workers' compensation, health insurance, and paid leave. Employers are required to offer such benefits to all employees.
• Fringe Benefits not required by law
  Some fringe benefits are not required by law and are provided at the employer's discretion. These include cash rewards, gym memberships, tuition assistance, or equity shares at no cost or low cost. These benefits attract and retain qualified employees and motivate them for better performance.

Which Fringe Benefits are Exempted to be levied?

When the Fringe benefits Tax was effective, few exemptions were provided under Finance Act.

• Free or concessional samples for promoting sales
• Payments to reputed persons for promoting sales
• Free or subsidized transport or allowance for commuting
• Contribution to approved superannuation fund up to Rs. 1 lakh per employee
• Payments through non-transferable electronic meal cards
• Organizing or sponsoring sports events or sportsmen
• Expenses on tour and travel at 5% valuation rate