Fringe benefit tax issue

The Finance Minister, Mr P. Chidambaram, is widely expected to provide a breather in Budget 2007-08 to small and medium enterprises (SMEs) on the fringe benefit tax (FBT) front.

With cost of compliance being high for SMEs and the rationale for levy of FBT on every kind of SME may not be justifiable, tax experts reckon that Mr Chidambaram may take steps to mitigate hardships of at least the SME sector.

(The small and medium enterprises sector has asked the Government for exemption from FBT.

The Federation of Indian Micro and Small and Medium Enterprises has also argued that with the increase in inflation, the threshold limit for income-tax has become so low that many people engaged with the sector are taking home less than what they were in the past.

The federation has also asked the Government to allow tax credits to employment intensive small enterprises.)

Indications are that the Finance Minister may specify a threshold limit up to which FBT levy would not be attracted.

"Such provision of a threshold limit would at least mitigate hardship of small entrepreneur as in majority of such cases there are no substantial benefits which are being provided to employees, warranting FBT levy on a presumptive basis," said Mr Aseem Chawla, Director-Taxation, Amarchand and Mangaldas.

In the case of service tax also, threshold limit exists.

Stating that there is lack of clarity on applicability of FBT, which is affecting even the tour and travel industry, tax experts want the Government to come up with provisions with a "clear language."

They want the Government to specify tests as to when an expense would yield benefit for employees or conversely when expense would not be regarded as incurred for purpose of business so as to attract presumptive levy of FBT.