More than a year after levying fringe benefit tax (FBT) on companies and firms, the government has now decided to pin down those who have shortpaid or evaded the levy.
The first-ever check on whether the correct amount of FBT has been paid will be done on all those companies whose income tax (I-T) returns are picked up by tax authorities for compulsory scrutiny. This covers all NSE 500 and BSE A Group companies listed on the Bombay Stock Exchange as on March 31, 06, among others.
Companies extending fringe benefits to their employees and paying the levy since FY06 have to file FBT returns in addition to income tax returns. They are being charged a 30% FBT on a defined base for different categories of expenses. The deadline for filing FBT returns for assessment year 06-07 (or FY06) is October this year.
While most of the tax returns that are accepted around 2% are examined more closely or placed under scrutiny by tax authorities. The tax department seeks extra details from the tax payer on the nature of expenses, source of income, source of assets and so on. Compulsory scrutiny is done to curb tax evasion.
The Central Board of Direct Taxes (CBDT) has finalised the norms for selection of cases for compulsory scrutiny of corporate and non-corporate assessees filing income tax
returns. It has parallely issued directives asking assessing officers to scrutinise the FBT returns of all assessees whose IT returns are picked up for scrutiny. This means there are no separate guidelines for scrutiny of FBT returns.
Banks and financial institutions, companies paying minimum alternate tax of over Rs 50 lakh, multi-national companies whose value of cross-border transactions exceed Rs 15 crore will face FBT scrutiny assessments. So will IT companies claiming tax holiday under Section 10 A and 10 B of the Income Tax Act are also in this list. The FBT collections stood at around Rs 4,800 crore in FY06.
As FBT is levied on a defined base of expenses, tax authorities can consider prescribing the level of expenses as a percentage of turnover as one of the norms for scrutiny. Otherwise, there could be companies which will face scrutiny assessment for FBT simply because their IT returns are picked up. On the other hand, there could be cases which should have been selected for FBT payments but for the fact that their IT returns are not picked up for compulsory scrutiny said a tax expert.
In any case, monitoring corporates for FBT compliance will become tighter as the government has made it clear that the levy is here to stay. Last fiscal, tax authorities were initially asked to refrain from taking coercive action against employers who were not paying up FBT. This is because some some tax payers had challenged the constitutional validity of this levy in various courts.
This fiscal, the government diluted provisions of FBT without scrapping the levy. For instance, companies contributing upto Rs 1 lakh on superannuation funds of their employees have been spared. All companies have to pay FBT on 5% of the travel and tour expenses incurred by employees instead of 20%.
Last fiscal, only IT and pharma companies enjoyed concessional FBT on travel and tour expenses.