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FBT collections decrease by 4%
September, 10th 2007

Personal and corporate income tax collections continue to look great this year too. But in stark contrast, fringe benefit tax collections are way off the mark.

The negative trend first noticed a month ago is now obvious. Taxmen themselves say this probably reflects that employers are passing on the FBT liability to the employees.

While personal and corporate tax collections between April-August this year have surged by 42 per cent. Fringe benefit tax collections have decreased by almost 4 per cent in the same period.

This year during the April-August period collections are down to Rs 1,015 crore, but last year the number stood at Rs 1,088 crore. The CBDT has targeted FBT collection of Rs 6,800 crore by March end this fiscal.

Tax consultants say even in the current financial an increasing number of corporates are re-engineering their employee pay packages to minimise FBT obligations.

For instance benefits like medical, conveyance, leave travel allowance, entertainment and many more are being slowly moved from the FBT categorization to allowances.

Subject to normal TDS

These allowances are then subject to normal TDS or tax deducted at source, which the employee pays in the shape of income tax. This effectively allows corporates to shift their FBT liability on to the employee without change in the incidence or rate of taxation.

Taxmen also say that this could explain why personal income tax collections are booming but FBT collections are not in line.

Going by the trend so far, the real test will come in the shape of FBT on ESOPS, guidelines for which are expected any day.

In amendments to the budget the Finance Minister has made it possible for corporates to let employees pay the Fringe benefit tax on ESOPS.

While practically the feasibility of this provision could be questioned in the coming days, this will definitely encourage more and more companies to shift their FBT obligation to employees.

For the Finance Minister though it is the moolah that matters. With the current buoyancy in taxes government is all set to surpass the tax collection targets yet again.

 
 
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