Workshop on

FOCUS

R Bupathy, FCA, Chennai

June 10, 2005

Structure of the Presentation

Objective Provisions Issues & Suggestions Compliance Conclusion

OBJECTIVE
Benefits given collectively to employees Segregation of personal element difficult Invisible advantage to employees sought to be taxed

IMPORTANT PROVISIONS Sec.115W to 115WL

Charge of FBT Sec.115WA Definition of Employer Sec.115W Meaning of FB Sec.115WB(1) Deemed FB Sec.115WB(2) Value of FB Sec.115WC Procedural aspects Sec.115WD to 115WL

Charge of FBT Sec.115WA

Additional Income Tax on FB provided or deemed to have been provided By an employer to his employees 33.66% on value of FB FBT payable even when no income tax is payable

Employer Sec.115W
Employer means i. A company; ii. A firm; iii. An AOP or BOI exception a. Fund, trust or institution eligible for exemption u/s.10(23C) or b. Registered u/s.12AA iv. A Local authority v. Every artificial juridical person not falling within any of the preceding sub clauses

Meaning of FB - Sec.115WB(1) Any privilege, service, facility or amenity, provided by employer to employees or former employees Free or concessional ticket to employees or their family members

Value of FB Sec 115WC

No Value prescribed Cost to employer less amount recovered from employee Actual contribution

Contribution by employer to an approved superannuation fund

Exception Sec.115WB(3) Privilege, service, facility or amenity on which tax is paid or payable by the employee

Deemed FB Sec.115WB(2)
Employer in the course of business / profession Including any activity whether or not carried on with the object of deriving income Incurred any expense or Made any payment for the following purposes

Deemed FB (Sec.115WB(2)

A. Entertainment B. Provision of hospitality Exception: Facility in office or factory Non transferable voucher Usable at eating joints or outlets C. Conference other than participation Includes conveyance tour and travel, hotel, boarding and lodging for the conference

Value (Sec.115WC) (% of Exp) 20% 20%

20%

Deemed FB (Sec.115WB(2)

D. Sales Promotion including publicity Exception: (I) Advertisement in Print, Electronic media or transport system (ii) Press conference, business convention, fair or exhibition (iii) Sponsorship by any Government agency, Trade Association or body (iv) Publication in Print or Electronic Media required under law or order of court or tribunal (v) Advertising in Hoardings, Banners, Bill Boards vi) Payment to advertising agency for above purposes

Value (Sec.115WC) (% of Exp) 20%

Deemed FB (Sec.115WB(2)

Value (Sec.115WC) (% of Exp) 20%

E. Employees Welfare Exception: To fulfill statutory obligation Mitigate occupational hazards Provide first aid in dispensary/hospital run by employer F. Conveyance tour & travel (including foreign travel) G. Use of Hotel, boarding and lodging facilities H. Repair & Running (including fuel) and maintenance of motor cars & depreciation thereon I. Repair & Running (including fuel) and maintenance of Aircrafts & depreciation thereon

20% 20% 20% 20%

Deemed FB (Sec.115WB(2)

Value (Sec.115WC) (% of Exp)

20%

J. Use of Telephone (including mobile phone) other than leased telephone lines K. Maintenance of guest house other than accommodation used for training purposes L. Festival celebrations M.Use of Health Club and Similar facilitates N.Use of Other Club facilitates O.Gifts and P. Scholarships

20%

50%

Employer Specific : Valuation of FB on Concessional Rate

1. 2. 3.

Business of Hotel Provision of Hospitality Business of construction conveyance tour & travel (including foreign travel) Manufacture or production of pharmaceuticals conveyance, tour & travel (including foreign travel) Use of hotel, boarding & lodging facilities

Value (Sec.115WC(2) (% of Exp) 5% 5% 5%

4.

5.

6.

Business of manufacture or production of computer software conveyance, tour & travel (including foreign 5% travel) Use of hotel, boarding & lodging facilities Business of carriage of passengers or goods by motor car repair, running (including fuel) maintenance of motor 5% cars & depreciation thereon Business of carriage of passengers or goods by air craft repair, running (including fuel) maintenance of air crafts & 0% depreciation thereon

Issues & Suggestions

1. Definition of Employer - Sec.25 companies 2. Applicability of this chapter in respect of i. expenditure incurred on persons other than employees ii. Firm incurring expenditure on partners iii. Assessment on presumptive basis

Issues & Suggestions

3. Definition of FB i. Privilege, service, facility or amenity no value prescribed value subject to tax ? ii. Re-imbursement of expenses for personal travel of employees and their family a. Section uses the expression any free or concessional ticket . Therefore applicable only to employers in the business of providing transport. iii. Contribution to unrecognised superannuation fund iv. Exit out of contribution to superannuation fund v. Exempted perks treatment thereof Example re-imbursement of medical expenses upto 15K - LTA

Issues & Suggestions

4. Deemed FB
i. Segregation between participation & other expenses ii. Sending employees for long duration training programmes iii. Distribution companies / pharmaceutical companies commission paid to marketing personnel - payment to sportsmen / model iv. Sponsorship by private companies v. Distribution of samples covered under sales promotion? vi. Hire charges for cars vii. Depreciation - Book or IT ? viii. Payment for leased telephone lines

ix. Accommodation used for training purposes

x. Difference between Health club & similar facilities and other club facilities

Issues & Suggestions

5. Employer specific exemption i. manufacture of computer software - applicability to IT enabled services 6. General i. applicability to courier companies ii. Valuation of rent-free accommodation iii. Definition of income not amended

Compliance
1. 2. 3. 4. 5. Maintenance of records Advance payment of FBT Audit requirements Filing of Return Completion of assessment

Conclusion
Bottom line will get effected Impact on cash flow Many issues to be clarified by CBDT Segregate expenses incurred on heads of expenses where applicability of FBT is not definite 5. Ensure compliance 1. 2. 3. 4.