FBT: India Inc sees disputes ahead

Many Indian corporates will have no other option but to move the courts against the Fringe Benefit Tax (FBT) as it violates constitutional v...

Many Indian corporates will have no other option but to move the courts against the Fringe Benefit Tax (FBT) as it violates constitutional validity.

‘‘There is still no clarity on many issues,’’ said tax lawyer H.P. Ranina. ‘‘For example, how can a company can be charged an FBT when a company pays for travel of its clients or a customer? They are not employees and it’s a genuine expenditure. This is a serious issue which will lead to litigation and I will not be surprised if some companies move the courts against this tax,’’ he said.

The grey areas will lead to litigation in the next three years and the Indian courts, which are already clogged with cases, will have to decide which specific expenditure by a corporate can invite FBT or not.

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While tax lawyers reiterated that tax laws have become ambiguous, the Income Tax department thinks otherwise. ‘‘There is no ambiguity in the laws… please go to our website to check out what attracts FBT and what not,’’ chief Income-Tax commisionner of Mumbai H. Tulsian told The Indian Express.

‘‘We have already collected Rs 200 crore in FBT in this fiscal,’’ he added.

But corporates see dark clouds ahead. ‘‘Provident fund and gratuity now exempted, were never intended to be part of FBT. In fact, issues pertaining to FBT will add to more disputes pending in the court,’’ said D.D. Rathi, Director and CFO of Grasim.

For example, remuneration or any payment made in kind made to a brand ambassador is part of FBT, though for all practical purpose it should have been outside the purview.

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Besides recovery of expenditure by the principal incurred for the client will continue to haunt companies. Companies particularly in the service industry are having contractual agreements wherein they incur expenditure on behalf of the client and recover it later.

It is not practical to enter into cost sharing arrangment to avoid fringe benefit tax between the principal and agent.

FBT was introduced by Finance Minister P. Chidambaram wherein specified benefits given to employees as ‘perquisites’ will is taxed to the employer. Most of the companies are planning to pass on the tax to their employees thus hitting the common man twice as they are not only paying income tax but end up paying surcharge and education cess and now FBT.