Fringe Benefit Tax (FBT) was introduced as part of the Finance Act 2005, and it came into effect from 1st April 2006. It was fundamentally a tax that was levied on the fringe benefits that companies offered to their employees in addition to their salary. However, the tax was abolished in 2010. 

Read on to know fringe benefit tax in detail.

Fringe benefit tax means a tax that the government imposed on the employee compensation package, excluding the salary or wage part. The benefits on which the government levied this tax included house rent allowance, healthcare assistance, travel and telephone expenses reimbursements, foreign travel allowance, children’s education allowance, etc. 

This tax was over and above any income tax liability that a company had. Even if the company did not have any tax liability, they were required to pay fringe benefit tax. These benefits were mainly given to executives and mid-level managers. 

As there were an increasing number of corporate companies who conveyed their resentment against this tax, the Government of India decided to abolish this tax under Finance Act 2009. This tax ceased in operation with effect from 1st April 2010. Now, all these non-wage perquisites are taxable in the hands of the employees.

The Central Government levied this tax by announcing this in the Union Finance Budget, 2005. There were several deliberations regarding what should be the rate of fringe tax, and finally, the government fixed the rate at 30% of the total amount of fringe benefits.

Now that you are familiar with the meaning of fringe benefits tax, let's discuss the exemptions offered under this taxation system:  

• Any expenses incurred by employers on food and beverages of employees were kept out of the realm of this taxation. 
• Any fees paid by employers to the employees for participation in a conference or exhibition were exempt from benefit taxes. 
• Expenses incurred by employers for complying with any obligation or regulations of the government were exempt from this tax. 
• Contributions made by employers to an employee’s superannuation fund up to ₹ 1 lakh were also exempt. 
• Any amount that an employer paid to its employees for travelling to and back from office was also exempt from any taxation. 

Fringe benefits tax was levied as there was a strong opinion on the part of the government that several companies were keeping the wage component low and increasing the non-wage components in compensation packages to bypass taxation laws. However, the government later abolished the tax owing to increasing resentment from various corporate sectors.