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Fringe Benefits Tax (India)

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What is fringe benefit tax?

Employees get many benefits at the cost of the employers. If a benefit is fully attributable to an employee, it is taxed in the hands of the employee. Where the benefits are usually enjoyed collectively by the employees and cannot be attributed to individual employees, they shall be taxed in the hands of the employer, and this tax is called Fringe Benefit Tax. An employer is liable for fringe benefit tax even if they do not have any income which is chargeable to the income tax.


The taxation of perquisites provided by an employer to his employees, in addition to the cash salary or wages paid, is fringe benefit tax. Any benefits that employees (current or past) get as a result of their employment are to be taxed, but in this case in the hands of the employer. This includes employee compensation other than the wages, tips, health insurance, life insurance and pension plans.

Fringe benefits as outlined in section 115WB of the Finance Bill, mean any privilege, service, facility or amenity directly or indirectly provided by an employer to his employees (including former employees) by reason of their employment.

They also include reimbursements, made by the employer either directly or indirectly to the employees for any purpose, contributions by the employer to an approved superannuation fund as well as any free or concessional tickets provided by the employer for private journeys undertaken by the employees or their family members.


In cases where the employer directly reimburses the employee for expenses incurred, it becomes difficult to effectively capture the true extent of the perquisite provided because of the problem of cash flow in the hands of the employer.

Therefore, the finance minister has proposed to adopt a two-pronged approach for the taxation of fringe benefits under the Income-tax Act.

This new tax was imposed on employers for the financial year commencing April 1, 2005.



Fringe Benefits Tax is imposed on the following entities:

  • Company
  • Firm
  • Association of person and body of individuals
  • Local authority
  • Artificial juridical persons

Exempted Entities for Fringe Benefits Tax

The following are not considered employers for the purpose of fringe benefit tax:

  • An individual,
  • A Hindu undivided family,
  • Entity eligible for exemption under section 10(23C) or registered under 12AA,
  • Central Government or State Government, and
  • A political party.



Fringe Benefit Tax Rate & Return

The value of the fringe benefits is taxable at 30% tax rate and additional 3% education cess on the total tax amount. For corporates with turnover of over 1 crore, there is additional 10% surcharge on the 30% tax. For depositing Fringe Benefit Tax (0026) or Banking Cash Transcation Tax (0036) use Challan no ITNS 283. The annual return is filed on the form ITR 8.

The due date for the return of fringe benefit tax for a companay or business or profession (non-corporate) where the books of accounts are required to be audited is September 30. For all others, the due date is July 31.

Advance Payment of Fringe Benefit Tax

The total Fringe Benefit Tax for the year is payable in advance in installments, as under:

  • On or before June 15 -- 15% of FBT for the year
  • On or before September 15 -- 45% of FBT for the year for corporate assessee or 30% for non-corporate assessee
  • On or before December 15 -- 75% of FBT for the year for corporate assessee or 60% for non-corporate assessee
  • On or before March 15 -- 100% of FBT for the year for corporate or non-corporate assessee


Note: Advance FBT is to be paid even if the tax is less than Rs. 5,000

What are these fringe benefits that will be taxed?

  • For the expenses under entertainment, employee welfare, conference, conveyance, company car, sales promotion, hospitality, hotel & lodging, telephone and maintenance of accommodation, 20% of the total amount is taxable.
  • For the expenses under festival celebrations, use of health club and other clubs, gifts and scholarship, 50% of the total amount is taxable.
  • For the tour, travel and foreign travel expenses, 5% of the total amount is taxable (value as per section 115WC).
  • Any free or concessional ticket provided by the employer for private journeys of his employees or their family members--100% of the cost minus any recovery from the employee.
  • Any contribution by the employer to an approved superannuation fund for employees--100% of the amount in excess of Rs. 1,00,000 for each employee.
  • Any specified security or sweat equity shares allotted/transferred to his employee free of cost or at concessional rate--100% of fair market value (FMV) of the specified security or sweat equity shares on the date on which options vest with the employee minus the amount actually paid by the employee.


  • Employees stock option plans (ESOPs)
  • festival celebrations; rate of 50 per cent.
  • gifts; rate of 50 per cent.
  • use of club facilities; rate of 50 per cent.
  • hospitality of every kind to any person whether by way of food and beverage or in any other manner, excluding food or beverages provided to the employees in the office or factory;
  • maintenance of guest house;
  • conference;
  • employee welfare;
  • consumption of fuel other than industrial fuel;
  • use of telephone; 10 per cent fringe benefit tax
  • scholarship to the children of the employees.
  • use of health club, sports and similar facilities;
  • sales promotion, including publicity;
  • conveyance, tour and travel, including foreign travel expenses;
  • hotel boarding and lodging;
  • repair, running and maintenance of motor cars; for fuel, the extent of use by employees has been taken at 20 per cent.
  • repair, running and maintenance of aircraft;

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  • Employer's provision of employee transportation to work or a cash allowances for this purpose.
  • Employer's contributions to an approved retirement plan (called a superannuation fund).

Who pays fringe benefit tax?

Fringe benefit tax is payable by an employer who is either an individual or a Hindu undivided family engaged in a business or profession; a company; a firm; an association of persons or a body of individuals; a local authority; a sole trader, or an artificial juridical person.

The tax is payable in respect of the value of fringe benefits provided or deemed to have been provided by an employer to his employees during the previous year.

The value of fringe benefits so calculated, is subject to additional income tax in respect of fringe benefits at the rate of thirty per cent, as provided in section 115WA.

The fringe benefit tax is payable by the employer even where he is not liable to pay income-tax on his total income computed in accordance with the other provisions of this Act.

The benefit does not have to be provided by the employer directly for him to attract fringe benefit tax. fringe benefit tax may still be applied if the benefit is provided by a third party or an associate of the employer or by under an arrangement with the employer.

How will fringe benefits be taxed ?

An employer liable to pay fringe benefit tax is required to furnish a return of fringe benefits before the due date as given in section 115WD.


Section 115WE outlines the procedure for the assessment of the return of fringe benefits filed by the employer and the determination of tax or interest payable or refund due and in either case the issue of intimation to that effect.


Perquisites which can be directly attributed to the employees will continue to be taxed in their hands in accordance with the existing provisions of section 17(2) of the Income-tax Act and subject to the method of valuation outlined in rule 3 of the Income-tax Rules.


In cases, where attribution of the personal benefit poses problems, or for some reasons, it is not feasible to tax the benefits in the hands of the employee, it is proposed to levy a separate tax known as the fringe benefit tax on the employer on the value of such benefits provided or deemed to have been provided to the employees.


For this purpose, a new Chapter XII-H is proposed to be inserted in the Income-tax Act containing sections 115W to 115WL, which provides for the levy of additional income tax on fringe benefits. The chapter is divided into three parts.

  • Part A contains the meaning of certain expressions used,
  • part B enumerates the basis of charge, and
  • part C delineates the procedures for filing of return in respect of fringe benefits, assessment and the payment of tax thereon.


How will the fringe benefit tax be calculated?

The value of fringe benefits shall be the aggregate cost incurred. That is, the total expense deducted will be considered for purposes of levying fringe benefit tax. From this, a certain percentage will be deducted. The difference therein will be taxed at the rate of 30%.

However, the fringe benefit tax rate varies from 10 per cent to 50 per cent depending upon the expense incurred:




See also

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