Fringe Benefit Tax? Have we understood it now?

Ever since its introduction in 2006, FBT has remained a point of contention between employers, employees and FM/ITO. However, I feel that it is an opportunity to shift to a better tax friendly salary. If you are thinking that such restructuring of salaries can lead to reduced tax collections then look at the broader picture. There were organizations that chose to evade tax by paying lot of cash and thus totally evading taxes. On the other hand, the responsible organizations had to pay more tax thereby subsidizing non-tax payers’ for nation’s growth. Now, with FBT in place, this disparity starts disappearing slowly as more organisations are willing to pay taxes.

FBT rules has two advantages: one, it allows organizations to pay lower tax on some incentives like fuel expenses. Secondly, it allows employers to pass on the FBT to employees. Had the second not been there, employers might have chosen to pay incentives as salary and let them bear burden of higher tax on it. Now with lower effective FBT rates, it has become possible for people to enjoy higher income with same salary or cost-to-company.

Today, a lot of organizations have shifted to this regime, albeit with different degrees of flexibility. While some (typically large ones) tightly define the salary structure, others (smaller ones) are more flexible and letting each of their employee design their own package with a given CTC.

I think organizations should fully benefit from this regime as being employee friendly leads to better employee satisfaction and nothing brings more satisfaction than being paid MORE.