In view of the restoration of liability on perquisites on the employees as a consequence of dropping Fringe Benefits Tax (FBT), there is an unexpected liability for the employees because of delayed tax deduction partly due to delay in the annual circular for this year. Our employer is willing to bear the tax on non-monetary benefits like housing, vehicle use for personal purposes and medical reimbursement beyond Rs. 15,000 etc. We understand to this extent such benefits will not be included in our salary in view of exemption under Sec. 10(10CC) of the Act. But there is some confusion created by Sec. 192(1B), which requires such amount to be included for rate purposes. Is this valid since it has an indirect effect of reducing the amount receivable by the employees in spite of exemption under Sec. 10(10CC) of the Act?
Sec. 10(10CC) grants exemption only for tax borne by the employer on non-monetary benefits of the employees. Non-monetary benefits themselves are not exempt. Sec. 192(1A) permits the employer to bear the tax thereon, while Sec. 192(1B) requires such tax to be reckoned with reference to average rate of tax applicable to the employee on his income from salary including all perquisites, both monetary and non-monetary.
The law would have been simpler, if such non-monetary benefits, on which tax is paid by the employer, had been excluded from employee's taxable income.
What is exempt is only the tax borne by the employer. This is confirmed in paragraph 3.2 and 3.3 of the Board Circular No.1 of 2010 dated January 11, 2010.
An illustration in the table gives the working in the case of a salaried employee with an income of Rs. 4.50 lakh of which Rs. 50,000 is on account of non-monetary benefits. Rs. 5,035 will be the tax borne by the employer at his option.
This tax borne by the employer has spared the grossing up of the salary income by adding the tax borne to the emoluments of the employee.
Though the perquisites are included in employees' hands, liability is neutralised by the tax credit for tax borne by the employer. Example 5 in the Circular would deal with non-monetary benefits like housing, hotel bills, free supply of gas, electricity and water, but does not deal with a situation where tax on them is borne by the employer. This has to be worked out with reference to the above illustration.
