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Cos tweak salaries to reduce FBT load
June, 27th 2007
The taxman has forced India Inc to rework compensation packages. Saddled with the fringe benefit tax (FBT), companies have tweaked pay packages to restrict their tax outgo. An ET study of 2,500 companies for which data are available reveals that the cumulative FBT payout dropped sharply by about 38% to Rs 982 crore in FY07.

Whats interesting is that FBT outgo came down even as the overall employee spend went up 20%. This has halved the ratio of FBT to employee expense from 1.5% to just about 0.77%. While a part of it could be due to a cut in FBT rates on certain perks in FY07, a large part of the decline in FBT payout is explained by an overhaul of emolument structures.

Says HR consultancy Cerebrus Consultants director Varda Pendse, There is a clear move from companies to control additional tax payout. Different companies are tweaking their compensation in different ways. For instance, some organisations have cut the fuel allowance for automobiles, others have put riders on a blanket reimbursement policy for telephone usage and so on.

Some common ways of reducing FBT outgo include tightening travel and tour policies for employees, merging conveyance compensation with taxable salary, and restricting the number of club memberships for top executives.

As per the data, public sector banking giant SBI remains the countrys highest FBT payer. However, last year SBI saw a significant drop in its FBT payment, which came down from Rs 458 crore in FY06 to Rs 88.5 crore last year.

Explains the SBI spokesperson, In FY06, due to lack of clarity, we paid FBT on our entire contribution to the employee pension fund. However, later on, the government ruled that only contributions above Rs 1 lakh per employee per year attracts FBT. Hence, in our case, FBT payment is lower this year.

Apart from SBI, companies such as IOC, Tata Steel, State Bank of Hyderabad, Union Bank, L&T, NTPC, TCS, ITC, State Bank of Patiala, Tata Motors, Hero Honda and Tata Power reported lower FBT payment. At the same time, there were some companies where FBT payment went up. The list includes such marquee names as Reliance Industries, ICICI Bank, Hindustan Lever, SAIL, Bharti Airtel, HDFC Bank, Hindalco, NHPC, ABB and i-flex Solutions among others.

However, in most of these companies, the higher FBT payout was accompanied by a much higher employee expense, i.e. the proportion of FBT to employee expense came down. This basically means, more people joined these companies, thereby increasing the employee expense that became taxable under FBT.

The list of top 10 FBT payers also changed with the exit of State Bank of Hyderabad, Union Bank and State Bank of Travancore. They were replaced by FMCG major HLL, telecom giant Bharti Airtel and IT major TCS.While the average ratio for FBT as a percentage of employee expense comes to a meagre 0.77% for the sample of 2,500 companies, there are many companies where it is over 5%. These include DLF (16.3%), Novartis (10%), Dunlop (9.3%), Britannia (6.6%), Monsanto (6.2%), Balaji Telefilms (6.1%), Adlabs (5.6%), ICI (5.5%), HLL (5.4%) and Marico (5.2%).
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