FBT was introduced in 2005 with the intent to tax fringe benefits provided, directly or indirectly, to employees or their family members in the course of employment and to tax business expenditure carrying an element of personal benefit to employees. To counter inherent difficulty in isolating the personal element, in case of collective enjoyment of benefits, FBT was introduced as a presumptive tax.

Fringe benefits have been defined to mean any privilege, service, facility or amenity provided, directly or indirectly, whether by way of reimbursement or otherwise to employees. Certain categories of business expenditure also have been characterised as fringe benefits, such as travel, conveyance, hotel, guest house, sales promotion, etc. These are in addition to specific perquisites, which were earlier taxed in the hands of individuals and are now subject to FBT in the hands of the employer (such as car and driver, domestic servants, telephone, etc).

FBT is levied at 30 percent (plus surcharge and cess) on the taxable value of fringe benefits. Fringe benefits are valued at 5 percent, 20 percent and 50 percent of specified expenses and at actuals in some cases. Thus, for a fringe benefit, which is valued at 20 percent, the FBT would amount to 6.732 percent in case of an Indian company.

Specific compliances have been prescribed in the law such as quarterly payment of FBT (FBT is to be paid by the 15th day of the next quarter), filing of FBT statement forming part of the corporate tax return, etc. There are interest and penal consequences for non-compliance. FBT is a non tax deductible expense for an employer.

Unlike Australia and other countries, which have well defined law on taxability of FBT, the Indian law in relation to FBT is evolving. It is expected that provisions of FBT would be further streamlined in times to come.