Brif rule of FBT Taxes

Answer 1

Hi All,

As an organization COMPANY has always endeavored to provide best in line employee benefits which are compliant with the existing legal framework. We would like to apprise you of the recent changes introduced in the Indian Income Tax norms which have an impact on the employee compensation structure. These changes pertain to Perquisite calculation for Car Fuel / Maintenance & Driver's Salary Reimbursement. Until last year there was no tax deduction if the employees claimed Car Fuel/Maintenance and Driver's wages as reimbursements as the same was taxable in the hands of the Company in the form of Fringe Benefits Tax. However, with effect from 1st April 2009, the aforesaid expenses are taxable in the hands of the employees. The Rules for calculating the tax liability are yet to be notified by the Govt. but to ensure the timely recovery of the tax from employees and to ensure that the employees are not burdened with huge tax deduction during the ending months of FY 2009-10, it has been decided to compute the tax liability on a tentative basis based on existing Rule 3.

The following changes shall be applicable with effect from 01-Apr-09 (retrospective) and shall be implemented by us from November'09 payroll onward.


Criteria of Perquisite calculation for Car Fuel/Maintenance and Driver's salary Reimbursement:

Situation I - When car is owned by the employee - SELF OWNED CAR

Value of perquisite (taxable amount) shall be derived by the following calculation:
A) Actual Car Fuel/Maintenance expenditure and Driver Wages reimbursed to employee
B) Less Rs 1200 per month if the cubic capacity of the car engine does not exceed 1.6 Litres and Rs 1600 per month if the cubic capacity of the car engine is more than 1.6 Litres.
C) Less Rs 600 per month for Chauffeur (Driver Reimbursement)
D) Balance paid amount would be Taxable

Calculation: D = A - (B+C)

i.e. in case your Car Fuel/Maintenance is 7500 and your driver wages is 6000 per month (Assuming that you own a car of capacity less than 1.6 Litres) then your taxable amount shall be =(7500+6000)-(1200+600) i.e.11700.

Please note that when the car is not registered in the name of the employee, the entire amount reimbursed will be treated as taxable component.

Situation II - When car is owned by COMPANY

Value of perquisite (taxable amount) shall be derived by the following calculation:
A) 1200 per month if the cubic capacity of the engine does not exceed 1.6 Litres and 1600 per month if the cubic capacity of the engine more than 1.6 Litres
B) 600 per month if chauffeur is provided (Driver Reimbursement)
C) The combined amount would be Taxable

Calculation: C= A+B

i.e., in case your Car Fuel/Maintenance is 7500 and your driver wages is 6000 per month (Assuming that you own a car of capacity less than 1.6 Litres) then your taxable amount shall be (1200+600) i.e.1800

The final tax liability will be computed when the final Rules are notified. This would accordingly be adjusted from the Salary of the employees.


Process to claim benefit of Car Fuel /Maintenance and Driver's salary Exemption:

A. Situation I - When car is owned by the employee- SELF OWNED CAR- Action required at employee end: Employees in this category should submit the photocopy of the registration certificate of their car (in his/her name) along with Driver's details, to their respective HR to avail applicable tax exemptions. If they do not submit the details, this amount shall be treated as a fully taxable component.
B. Situation II - When car is owned by COMPANY- COMPANY CAR- No action required at employee end: We already have a list of employees who have been provided with the company car and they are required to only submit the Driver's details, wherever applicable. They can claim this amount as reimbursement as usual and will be entitled to relevant benefits.
Based on the above, please note that the income tax computation will be revised in all cases where Car Fuel/Maintenance and Driver's salary is reimbursed. The additional tax liability on account of this for the period from 1st April 09 till 31st October 09 would be averaged and recovered from payroll for the period November 09 till March 2010 along with the applicable monthly tax deductions.