Now the perquisites are to be taxed that too effective from April '09

As you are aware that the Fringe Benefit Tax (FBT) was abolished in the recent Finance Bill, which paved way for more tax in the hands of the employees. The taxability has been shifted from the Employer to the employee. This will have an impact on the tax to be deducted from the employees in the coming months till Mar 2010.

According to the new rule, which was notified on Friday (18t-Dec-09) by the Central Board of Direct Taxes (CBDT), the perks like ESOP, residential accommodation, free conveyance, free food, provision of company vehicles for personal & official use, concessional education, concessional journeys, credit card, interest-free loans, gift vouchers, hotel stay exceeding 15 days, medical facilities etc., are to be taxed in the hands of the employee with retrospective effect from 1-Apr-09.

For the valuation part of vehicles, small cars below 1.6 litres will now have a value of Rs 1,800 per month while cars with engine capacity above 1.6 litre cubic capacity will have a value of Rs 2,400 per month, if expenses on maintenance and running are reimbursed by the employer.

Per this new rule, the value of the perk will be added to the employees taxable income and taxed accordingly. Some employees at the lower tax bracket may move to the next bracket. 

It is important to take note of the following in the current situation:

• The additional tax due the added taxable salary component, need to be collected in the remaining 3 months (Jan, Feb & Mar), if not started in Dec09.
• If the employee got his final settlement before Dec09, who has to take the hit is a question mark. 
• If the employer includes the taxable portion in his Form16, then he has to pay and collect from the employee.
• Can the employer hold the issue of Form16 till the employee pay the employer? I don't think so.
• Tax planning need to be redone by the employee.
• Is the Payroll department robust enough to calculate the additional perks that need to be added to the employee's income and deduct the tax accordingly.

Let us see if the CBDT gives any further clarification in this regard.

Cheers,

Gopal