A mechanism may be on the anvil to help companies to reclaim the fringe benefit tax they had paid for the first quarter along with advance corporate tax, as the government goes about implementing the budget proposal to abolish the levy with retrospective effect from April 1, 2009.
Companies may be able to seek a refund or a set it off against their other tax liabilities, and the finance ministry, which is examining the issue, is likely to come out with a clarification on the matter, said a senior official.
Finance minister Pranab Mukherjee had abolished the tax in the Budget 2009-10 presented in July.
However, companies had to pay FBT along with corporate advance tax in June, ahead of the presentation of the budget. The government had collected over Rs 1,000 crore as FBT in the first quarter, April-June, 2009-10.
Tax experts say the Central Board of Direct Taxes, the apex direct tax body, will have to clarify the matter and prescribe a mechanism for a refund or tax adjustment in the current financial year.
It is a unique situation with no easy solution since taxes have been collected against a provision that may no longer exist. Ideally, taxpayers should be permitted to claim a refund right away by means of a specified form that CBDT could notify.
If taxpayers have to claim the refund under their normal tax returns, it would be a two-year wait at the minimum which is too long, said Amitabh Singh, partner, Ernst & Young.
While the tax can be easily set-off or adjusted against future advance tax payments of companies, a refund is the only option for a loss-making company. In respect of loss-making companies, liaison offices, where they are not liable to pay corporate tax, the FBT paid in first quarter would have to be claimed as a refund as it cannot be adjusted against any other tax, said Vikas Vasal, executive director, KPMG.
FBT, introduced by former FM P Chidambaram in 2005, is a kind of presumptive tax on expenditure incurred by a company on its employees.
Some of the benefits given by an employer to the employees were taken as deemed to be given, such as travel and hotel stay, of which 20% of expenditure incurred is treated as deemed fringe benefit.