FBT: Controversial in birth and controversial in death too!

By TIOL News Service

NEW DELHI, JULY 10, 2009: THE Finance Minister, Mr Pranab Mukherjee, proposes to guillotine the widely-disliked Fringe Benefit Tax (FBT). However, in their quick budget reactions the India Inc and the Sensex gave little credit to Dada. And now, there is a big question mark over whether India Inc will get the credit (refund) for the advance tax of FBT paid by June 15?

As per Finance Bill, 2009, the FBT is proposed to be abolished from April 1, 2010 (AY 2010-11). In other words, it is not leviable for the current fiscal. If that is so, the intent to refund the first quarter payment should have been there in the Bill. But the Bill is silent and the CBDT will have to now come out with a clarification or amendment of the provision in the Bill at the time of enactment towards the end of the current month. It is quite possible that the Govt may opt for adjustment of the same towards regular advance tax payment rather than any refund. Whatever it is, a clarification is the need of the hour to address the worries of the India Inc.

Similarly, what happens if someone though liable to FBT as of now, has not paid the same? Will he/she have to pay interest in terms of section115WJ? Again, there are no answers.

The proposed section 115WM says: “Nothing contained in this chapter shall apply, in respect of any assessment for the assessment year commencing on the 1st day of April, 2010 or any subsequent assessment year”. Therefore, the provision of interest should also not apply. That would, however, be a premium for dishonesty in as much as an honest taxpayer who has discharged his duties in accordance with the extant laws will be treated at par with a delinquent one.

Interestingly, controversies always remained an integral part of FBT's short journey of three years. It was perhaps because of its controversial birth. It was perhaps a 'genetic' issue. It was introduced with the avowed object of taxing the benefits which are commonly enjoyed by the employees and can not be captured in the hands of the individual tax payers. What came out was something totally different and taxed even payments which did not involve any fringe benefits at all. The regime of FBT also cast other compliance problems by insisting on filing of a separate return of FBT and providing for separate payment of Advance tax and separately provided for interest and penalty in the event of non-compliance.

The present FM has specifically recognized that there were severe compliance issues with the FBT and decided to abolish it because of the same.

In its short life of 3 years after its introduction by the Finance Act, 2005, there have been amendments to the provisions by each of the Finance Acts, 2006, 2007, 2008 besides the Taxation Laws (Amendment) Act, 2005. That apart, the CBDT had to come out with numerous clarifications. The clarification through circular no 8 of 2005 had as many as 107 questions and answers; a step certainly unprecedented in the annals of Income tax administration.