Fringe Benefit Tax – Meaning, Types and Exemptions

What is Fringe Benefit Tax?

The fringe benefits are some of the additional benefits that are provided to employees by their employers, along with their regular salary. These benefits may include retirement plans, health insurance, tuition assistance, paid leave, childcare, entertainment, etc.

They are used by employers to attract and motivate employees. There are some tax implications on the fringe benefits for both parties, depending on the value and type of benefit.

The fringe tax benefit means that the employers have to pay a certain amount for the benefits they provide to the employees. As per the Fringe Benefit Tax Act, it is calculated separately from the income tax, and it is computed on the total taxable value of the benefits.

The fringe benefit tax rate is 30% of the total cost of benefits paid by the company.

Types of Fringe Benefits

There are two types of fringe benefits:

1. Fringe Benefits required by law

These are the non-cash benefits provided by the employers to the employees. These benefits include paid leave, unemployment insurance, health insurance, social security, compensation for workers, etc.

2. Fringe Benefits not required by law

These benefits are provided at the employer's discretion. It includes gym memberships, cash rewards, tuition assistance, shares in equity at low cost or no cost, etc.

Exemptions under Fringe Benefits

When the fringe benefits tax was in effect, there were some exemptions given under the Finance Act:

• Payments given to the reputed persons to promote sales.
• Payments are made through the electronic meal cards.
• Payments made on tour and travel.
• Sponsoring or organizing the sports events.
• Cocessional or free samples provided to promote sales.
• Payments made to the superannuation fund up to Rs 1 lakh per employee.
• Free transport facilities or allowance for commuting.