FBT has been eliminated, but tax incidence shifted to employees

The budget has delivered the long standing demand of the corporates to abolish FBT. This tax posed a compliance burden on the tax payer as well as an administrative burden on the Department. However, the actual tax burden on fringe benefits would not be completely eliminated but would be shifted from the employer to the employee. The employer, instead of paying FBT, would now have to deduct tax at source from the employees in respect of certain fringe benefits, including ESOPs and contribution to superannuation fund in excess of the prescribed limit. These would now be taxed as perquisites in the hands of the employees. The employees may be put to difficulty on account of the liquidity problem which may arise on payment of tax on such perquisites at the time they exercise the option (in case of ESOPs) and at the time of employer’s contribution to superannuation fund in excess of the prescribed limit. They would not be receiving any cash benefit at the time when the tax payment on such perquisites is due, which may give rise to a liquidity problem.