valuation of fringe benefits

Fringe Benefits Tax (FBT) – Income Tax

Fringe Benefits

Fringe Benefits tax under Income Tax are updated for June 2023 and Dec 2023 Exams. These notes are beneficial for CS Executive New Syllabus of ICSI.  

Valuation of Fringe Benefits [Rule 3(7)]

Interest Free Loans or Loans at Concessional Interest Rate [Rule 3(7)(i)]

Here we have to find out the value of the benefit to the employee resulting from the provision of interest-free or concessional loan for any purpose made available to the employee or any member of his household during the relevant previous year by the employer or any person on his behalf.

Method of Valuation

Sum equal to the interest computed at the rate charged per annum by the SBI as on the 1st day of P.Y in which loan is taken by employee on the maximum outstanding monthly balance

Less

Sum equal to the interest computed at the rate actually paid by employee or any such member of his household to employer

Note
No value shall be considered

  • if such loans are made available for medical treatment in respect of diseases specified in Rule 3A of Income Tax Rules, 1962 or
  • where the amount of loans are not exceeding in the aggregate Rs. 20,000

Where the benefit relates to the loans made available for medical treatment referred to above, the exemption so provided shall not apply to so much of the loan as has been reimbursed to the employee under any medical insurance scheme.

The value of travelling, touring, accommodation and any other expenses paid for or borne or reimbursed by the employer for any holiday availed of by the employee or any member of his household [Rule 3(7)(ii)]

Value of benefit shall be

  • the sum equal to the amount of the expenditure incurred by such employer in that behalf.

Where such facility is maintained by the employer, and is not available uniformly to all employees,
Value of benefit shall be taken to be

  • the value at which such facilities are offered by other agencies to the public.

Where the employee is on official tour and the expenses are incurred in respect of any member of his household accompanying him
Value of benefit shall be taken to be

  • the amount of expenditure so incurred in respect of such member of household

The amount so determined above shall be reduced by the amount, if any, paid or recovered from the employee for such benefit or amenity.

Value of free food and non-alcoholic beverages [Rule 3(7)(iii)]

The value of free food and non-alcoholic beverages provided by the employer to an employee shall be

  • the amount of expenditure incurred by such employer.

The amount so determined shall be reduced by the amount, if any, paid or recovered from the employee for such benefit or amenity.

In case food and non-alcoholic beverages at office during working hour or through not transferable vouchers
No Value shall be considered in case of food and non-alcoholic beverages provided by such employer

  • during working hours at office or business premises or
  • through paid vouchers which are not transferable and usable only at eating joints,

if value thereof in either case does not exceed Rs. 50 per meal. It means expenditure in excess of Rs. 50 should be treated as perquisite (after reducing the money recovered from the employee)  

In case of tea or snacks during working hours
No Value shall be considered in case of tea or snacks provided to the employee during working hours

In case food and non-alcoholic beverages at remote area or an off-shore installation
No Value shall be considered in case of free food and non-alcoholic beverages during working hours provided in a remote area or an off-shore installation.

Value of any gift, or voucher, or token [Rule 3(7)(iv)]

The value of any gift, or voucher, or token in lieu of which such gift may be received by the employee or by member of his household from the employer shall be determined as the

  • sum equal to the amount of such gift.

But if the value of such gift, voucher or token, as the case may be, is below Rs. 5,000 in the aggregate during the previous year, the value of perquisite shall be taken as “nil”.

Note

  • If the gift is in cash or in any form which can be converted into cash (like cheque), entire amount shall be taxable.
  • If the value of gift is above Rs. 5000, the value in excess of Rs. 5000 shall be taxable.

Value of expenses on Credit Cards [Rule 3(7)(v)]

Value of expenses including membership fees and annual fees incurred by the employee or any member of his household, which is charged to a credit card (including any add-on-card) provided by the employer, or otherwise, paid for or reimbursed by such employer

Value is – actual amount paid or reimbursed by employer less the amount paid or recovered from the employee.

If expenses are incurred wholly and exclusively for official purposes
No value of such benefit where expenses are incurred wholly and exclusively for official purposes and the following conditions are fulfilled:—

  • complete details in respect of such expenditure are maintained by the employer which may, inter alia, include the date of expenditure and the nature of expenditure;
  • the employer gives a certificate for such expenditure to the effect that the same was incurred wholly and exclusively for the performance of official duties.

Club membership and expenses incurred in a club [Rule 3(7)(vi)]

The value of benefit to the employee resulting from the payment or reimbursement by the employer of any expenditure incurred (including the amount of annual or periodical fee) in a club by him or by a member of his household

  • actual amount of expenditure incurred or reimbursed by such employer on that account less amount recovered from the employee.

If employer has obtained corporate membership
If employer has obtained corporate membership of the club and the facility is enjoyed by the employee or any member of his household,

  • the value of initial fee paid for acquiring such corporate membership shall not be considered.

Where facilities are provided to all employees uniformly
No value shall be considered in case of use of health club, sports and similar facilities if such facilities are provided by employer uniformly to all employees.

Use of Movable assets by employee [Rule 3(7)(vii)]

The value of benefit to the employee resulting from the use by the employee or any member of his household of any movable asset (other than motor car, laptops and computers) belonging to the employer or hired by him

In case of use of laptops and computers by employee

  • No value (NIL)

In case of use of any other movable assets

  • If asset is owned by employer à 10% per annum of the actual cost of such asset
  • If asset is hired by employer à the amount of rent or charge paid or payable by the employer

Reduce the amount, if any, paid or recovered from the employee for such use.

Transfer of any movable assets [Rule 3(7)(viii)]

The value of benefit to the employee arising from the transfer of any movable asset belonging to the employer directly or indirectly to the employee or any member of his household

In case of laptops, computers and other electronics item

  • the actual cost of such assets to the employer less 50% of such cost for each completed year during which such asset was put to use by the employer, on the basis of reducing balance method

 In case of motor car

  • the actual cost of motor car to the employer less 20% of such cost for each completed year during which such asset was put to use by the employer, on the basis of reducing balance method

In case of any other asset

  • the actual cost of motor car to the employer less 10% of such cost for each completed year during which such asset was put to use by the employer, on the basis of straight line method

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