Copy of balu

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Organization Study

A PROJECT ON

ASTUDY ON FRINGE BENEFIT TAX AND ITS EFFECT

Submitted To

Bangalore University

MASTEROF BUSINESS ADMINISTRATION

Submitted By

BALACHANDRA.LRegistration Number

09XECMA015

Under The Guidance Of

Mr.Bhaskar .sirExternal Guide

EAST POINT COLLEGE OF HIGHEREDUCATION

Bidarahalli, Virgonagar Post, Bangalore-560049

AFFILIATED TO

BANGALORE UNIVERSITY

2009 - 2011

EAST POINT COLLEGE Page 1


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INTRODUCTION

TITLE OF THE STUDY:

A STUDY ON FRINGE BENEFIT TAX AND ITS EFFECT .

NAME OF THE COMPANY:

.ENGINE DIVISION.Bangalore

CONCEPTUAL BACKGROUND OF THE STUDY:

The Aerospace and Defense Industry was struggling to maintain profitability

even before 11th September 2001, and fears of further terrorism, the conflicts in

Afghanistan and Iraq, and a weak economy combined to devastate the commercial

Aerospace Industry over the ensuing years. On the other hand the wars in Afghanistan

and Iraq have bolstered the coffers if many defense companies, though belt tightening

may be on the way.

RESEARCH DESIGN

AIMS AND OBJECTIVES:

To know about fringe benefit tax

To find out the effects fringe tax on compensation plan of the company

To know the taxation of the company.



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SCOPE OF STUDY:

The study was limited to changes in effects fringe tax on

compensation plan.

STATEMENT OF PROBLEM:

To know the Fringe benefit tax and its impact on compensation plan.

RESEARCH METHODOLOGY:

DATA COLLECTION:

Primary data:

Questionnaire

Observation

Interview

Secondary data:

Company journals

Annual reports

Employee performance records.

Website

TOOLS AND TECHNIQUES USED FOR ANALYSIS:

database

internet

CHAPTER SCHEME:



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CHAPTER NO. CONTENTS

1 INTRODUCTION

2 RESEARCH DESIGN

3 PROFILE OF THE COMPANY /ORGANISATION

/SYSTEM

4 ANALYSIS AND INTERPRETATION OF DATA.

5 SUMMARY OF FINDINGS CONCLUSION AND

RECOMMENDATION

6 BIBLIOGRAPHY

7 ANNEXURE


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INTRODUCTION

FRINGE BENEFIT TAX:

The finance act 2005 has introduced a FRINGE BENEFIT TAX w.e.f 1.4.2005

relevant to the A.Y 2006-07 on employees for the fringe benefits provided to incurred

by them on their employees collectively, for changing fringe benefit tax ,the rate of tax is



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33.66 percent ( including 10percent surcharge &2percent edu cess thereon )on the value

of fringe benefits provided or deemed to have been provided by the employers to their

Employees .this tax is addition to the regular income tax changed on the employers

name ,Importantly no deduction will be allowed towards the fringe benefit tax paid from

taxable income.

Fringe Benefit Tax may seem new to India, but it's not a novel concept. This tax is

already levied in the United States, the United Kingdom, Canada, Australia, New

Zealand, Japan and some other nations.

The fringe benefit tax rules proposed in the Budget by the finance minister are

modeled on the Australian system [1]. With the only difference that fringe benefit tax is

proposed to be taxed at between 10 per cent and 50 per cent in India, whereas in Australia

it is taxed at a flat rate of 60%[2].

Reason For Introducing Fringe Benefit Tax:

Attribution of the personal benefit poses problems, or for some reasons, it is not

feasible to tax the benefits in the hands of the employee, thereby , it was proposed to levy

a separate tax known as the fringe benefit tax on the employer on the value of such

benefits provided or deemed to have been provided to the employees.

For this purpose, a new Chapter XII-H is proposed to be inserted in the Income-tax Act

containing sections 115W to 115WL, which provides for the levy of additional income

tax on fringe benefits.

The chapter is divided into three parts. Part A contains the meaning of certain

expressions used, Part B enumerates the basis of charge, and Part C delineates the

procedures for filing of return in respect of fringe benefits, assessment and the payment of

tax thereon. Perquisites which can be directly attributed to the employees will continue to

be taxed in their hands in accordance with the existing provisions of section 17(2) of the

Income-tax Act and subject to the method of valuation outlined in rule 3 of the Income-

Taxation Rules.



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(m) repair, running and maintenance of motor cars;

(n) repair, running and maintenance of aircraft;

(o) consumption of fuel other than industrial fuel;

(p) use of telephone;

(q) scholarship to the children of the employees.

In cases where the employer is engaged in the business of carriage of passengers or

goods by motor car or by aircraft, a lower percentage of expenses on repair, running and

maintenance of motor cars or aircrafts or fuel expenses has been specified. Similarly, for

hotels, a lower percentage of the expenses incurred on hospitality has been specified for

purposes of calculating the liability under the fringe benefit tax.

An employer liable to pay fringe benefit tax is required to furnish a return of fringe

benefits before the due date as given in Section 115WD.Section 115WE outlines the

procedure for the assessment of the return of fringe benefits filed by the employer and the

determination of tax or interest payable or refund due and in either case the issue of

intimation to that effect.

Who pays Fringe Benefit Tax[4]

Under the proposed provisions, fringe benefit tax is payable by an employer who is either

an individual or a Hindu undivided family engaged in a business or profession; a

company; a firm; an association of persons or a body of individuals; a local authority; asole trader, or an artificial juridical person.

The tax is payable in respect of the value of fringe benefits provided or deemed to have

been provided by an employer to his employees during the previous year.

The value of fringe benefits so calculated, is subject to additional income tax in respect of

fringe benefits at the rate of thirty per cent, as provided in section 115WA.



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The fringe benefit tax is payable by the employer even where he is not liable to pay

income-tax on his total income computed in accordance with the other provisions of this

Act.

The benefit does not have to be provided by the employer directly for him to attract fringe

benefit tax. fringe benefit tax may still be applied if the benefit is provided by a third

party or an associate of the employer or by under an arrangement with the employer.

Quarterly payment of advance fringe benefit tax under sec.115WI:

The fringe benefit tax liability is to be computed every quarter and to be paid in quarterly

installments of advance starting from quarter ended 30th June 2005

Fringe benefit tax for each quarter is to be by the 15th day of the every month following

such quarter exempt for the iast quarter ending 31st march where it is to be paid by the

15th march.

Explanation Of How FBT Will Operate [5]:

# Fringe benefit tax on use of cars, etc-The tax on perquisites like maintenance of a car,

club membership, free meals, credit cards and tours and travel, which were earlier taxed

in the hands of the employees, has been withdrawn and the employer will now be liable to

pay tax on this. Whereby, it will not give any relief to the employees.

Illustration: In the case of the perquisite value of a car, employees are taxed at a rate

ranging between Rs 1,100 (for small cars) and Rs 1,700 a month (for bigger vehicles) inaddition to Rs 300 or 500 for a driver provided by the company.

# It will badly hit the Corporate in India Reports suggest that the fringe benefits tax will

result the Indian incorporations to an additional expenditure of about Rs 25,000 crore.

# Advertising agencies will be hit by fringe benefit tax-The 30 per cent fringe benefit tax

will hurt advertising agencies badly as in this sector about 10% o 12% of an employee's

salary comes in the form of perks.



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In the glamorous world of advertising attending conferences all over the world, wining

and dining to network with clients and bag more business, etc is the done thing. Now all

these expenses will come under the ambit of fringe benefit tax.

Also, advertising agencies are people-oriented one and staff welfare and salaries account

for almost 50 per cent of their expenses. The fringe benefit tax will thus hurt ad agencies

badly.

# Reaction of the Indian Incorporations as to the enactment of FBT-India Inc is quite

nervous about the proposed fringe benefit tax and feels that the gains from the reduction

in corporate tax announced in the last Budget would be nullified by the cut indepreciation rates.

# Reaction of Software firms[6]-Some software firms feel that a wide variety of payments

would come under the ambit of fringe benefit tax. A recent survey also said that because

of the impact of the fringe benefit tax, companies across sectors are likely to cut down on

the increments that employees would get. The proposal has invited criticism even from

the Institute of Chartered Accountants of India, which has otherwise praised the finance

minister for rationalizing the tax administration.

# Small firms might be spared: A Business Standard report said that the finance ministry

is considering threshold staff strength for levying the fringe benefit tax on employers.

Finance ministry officials indicated that organizations with very few employees could be

exempted from the tax. This is based on the assumption that small employers do not

spend large amounts on fringe benefits. The ministry will also examine combining the tax

return for fringe benefits with the income tax return to avoid the need for filing separate

forms, the report said.

Constitutionality Of Fringe Benefit Tax:

FBT is constitutionally valid as it has come into force by the powers conferred by Indian

Constitution through the below Articles:

1. Article 39: Principles of policy to be followed by the state for securing economic

justice- to ensure , the economic system should not result in concentration of wealth



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and means of production to the common detriment. Whereby, its the duty of Centre to

take steps for securing economic justice. This new measure is nothing but a step taken by

the government as a functional form highlighted under the Article 39 of the constitution.

2. Article 265: No tax can be levied or collected except by authority of law. The

Authority of law means the legislative competence of the legislature imposing the tax. In

this case, the Finance Ministry as passed this legislation which has the absolute legislative

competence to pass the law.

3. Article 14: The principle of classification is applied somewhat liberally in case of a

taxing statutes.

Where the power to tax exist, the extend of the burden is a matter for discretion of the

law makers. The evident indent and general operations the tax legislation is to adjust the

burden with the fair and reasonable degree of equality.[7]

4. Article 270: All taxes and duties referred to in the Union List except the duties and

taxes referred to in Article 271 and any tax levied for the specific purposes under any law

made by Parliament shall be distributed between the Union and the states.

5. Article 271: Centre could levy a surcharge on Income tax on non-agricultural income

for its exclusive use without sharing with States.

Head of Expenditure Percentage of Section 115 the expenditure WB (2) deemed to be

fringebenefit

(A) Entertainment 20%



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(B).Hospitality of every kind to any person 20%

(C).Conference (other than fee for participation) 20%

(D).Sales promotion, including publicity excluding advertisement 20%

(E).Employees Welfare 20%

(F).Conveyance, tour and travel, including foreign travel 20%

(G).Use of Hotel, boarding and lodging 20%

(H).Repair, running (including Fuel), maintenance of motorcars and

Depreciation thereon 20%

(I)Repair, Running (including fuel), maintenance of aircraft and

depreciation thereon 20%

(J).Use of Telephone including mobile phone(other than leased lines)20%

(K).Maintenance of accommodation in the nature of guest houses

(Other than for training purposes) 20%

(L).Festival celebration 50%

(M).Use of health club and similar facilities 50%

(N).Use of any other club facilities 50%

(O).Gifts 50%

(P).Scholarship 50%

115WB (1) (b) Any Free or Concessional ticket for private journeys

Actual

115WB (1)( c) Contribution to Superannuation fund

THE CHARTERED ACCOUNTANT 1700 JUNE 2005

TAXATION



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Explanation 2 is for the purposes of Section 10A only and in Explanation (b) is for the

purposes of Section 80HHE only.

G. Need For Reclassification of Expenditure Heads:

With the introduction ofFringeBenefitTax from 1st April, 2005, there is a need

to revise the expen-diture heads so that the expenditure not liable for fringebenefit do

not get merged with the expenditure liable for FringeBenefitTax. Some of the heads

where this regrouping will be required are as under.

Hospitality provided to theemployees by way of food andbeverage in office or

factory orby way of paid vouchers needto be debited under a separatehead other

than the employee welfare / staff welfare expenditure.

ii. Expenditure on repair, running and maintenance of motor car and depreciation

thereon need to be classified separately from the expenditure incurred on repair,

running of vehicles other than motor Cars, Bus, Truck and Scooters etc.

iii. Expenditure on conference fee for participation of employees needs to be

classified separately in view of exemption in clause (C).

Expenditure, which is taxable as perquisite in the hands of employees is not liable

for FringeBenefit Tax. As such all such expenditure need to be debited under

the head Salary or Establishment Expense, so that the same does not get

clubbed with the other expenditure which is liable for Fringe BenefitTax.

Expenditure on maintenance of guesthouse being used for training purposes need

to be classified separately from the expenditure incurred on maintenance of guest-

house as such.

H. Fringe Benefit Tax is not a deductible expenditure:

The fringebenefittax paid by the employer shall not be an eligible expenditure

while computing profit or gain of business or profession, despite the fact, that the same



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has been paid on account of the liability of the employees. A new sub-section 40(a) (ic)

has been inserted to provide that the Fringe Benefit Tax shall not be deducted while

computing income. The reason for this is that this tax despite being an obligation of the

employee is borne by the employer and still it is not added as fringebenefit while com-

putting the liability of the Fringe BenefitTax. Thus, the tax is not being compounded of.

In the alternative option, the tax could havebeen compounded of and full deduction of the

tax would have been allowed while computing business income. Under both the

alternatives, the total tax liability issame for a tax paying entity. However, in the

alternative option, the liability of the tax-exempt and loss-making entities would have

been much higher. Further, tax Auditor shall be required to specify the amount offringe

benefittax debited in the profit and lossaccount under clause 16(f) of Form3CD of the

tax audit report from assessment year 2006-07 onwards.

Compliance ofFringe Benefit Provisions:

Payment of tax in advance: The Fringe Benefit Tax is applicable from

financial year begin-ning on 1stApril 2005, i.e., assessment year 2006-07. For complying

with the fringe bene-fit provisions, every employer shall be required to compute the value

of the fringe benefits ,every quarter. It is to be noted that there is a liability to pay Fringe

BenefitTax by way of advance tax every quarter, not on the basis of yearly estimate,

buton the basis of the actual value of fringe benefits computed every quarter. Further,

there is no threshold limit for the liability topay FringeBenefitTax in advance every

quarter as is the case under Section 208 of the Act in the case of regular income tax is to

be paid only when the same is Rs. 5000 or more. This may cause genuine hardship

tothose entities, which will be required to pay small or nomad amount ofFringeBenefit

Tax and will also cause administrative problem to the collecting bank as well as tax

administration. In view of this requirement to pay advance tax on actual basis, every

employer shall be required to compute the actual



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TAXATION

A new clause (d) is being added to Section 271(1) for levying penalty in case

there is a concealment of the particulars of fringebenefit or inaccurate particulars are

furnished. The penalty for late filing of FBT return shall be Rs. 100 per day for each day

of default starting from the due date of return as against penalty of Rs. 5000 leviable for

late filing of return of regular income.

Amount of the fringebenefit liable for tax. The immediate requirement will be to

compute the same for the first quarter starting from 1stApril 2005 to 30thJune 2005 of the

current year and pay the tax thereon at the rate of 33.66 per cent (inclusive of surcharge

and education cess) by 15thJuly 2005. Similar Liability is to be computed and paid for the

subsequent quarters by 15thOctober and 15th January. However, for the quarter ending on

31stMarch, the fringebenefittax is to be paid even before the end of the quarter, i.e., by

15thMarch.In case of failure to pay the tax for any quarter, or where the tax paid is less,

then there shall be a liability to pay interest at the rate of 1 per cent on the amount of the

short-fall for every month or part of the month till the short-fall continues. The liability to

pay interest under the FringeBenefitTax is on monthly basis and shall continue till the

date it is actually paid. The provision of interest liability in case of default or delay in

payment offringe benefit tax in advance are on the line of section 234B and 234C of the

act with exception that these two have been merged by providing that interest is to be paid

from the date of the default till actual payment. (There is no breaking of the period up to

31stMarch and the period thereafter). Further, in case of default in any quarter, interest is

to be computed on monthly basis as against quarterly basis under Section 234Cof the Act.

The liability to pay interest in case of shortfall of tax is on actual amount of the

tax payable without any concession on account of estimation as is the case under Section



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234B and Section234C of the Act where interest is payable only when the advance tax

paid is less than 90 per cent of the actual tax liability .This may cause practical

difficulties particularly for the last quarter where the tax is to be deposited by 15thMarch,

i.e., 16 days even before the quarter ends. Further, in the case of entities such as banks

having a large number of branches, it may practically be difficult to compile information

of all the branches within aperiod of 15 days from the end ofthe quarter and that too after

making the provision of the expenditure incurred on accrual basis.


Every employer who has provided the fringe benefits to his employees is

required to file return offringe benefits irrespective of whether such employer is

required to file return of his own income under Section 139 of the Act or not. The

due date of filing.Return shall be 31stOctober for a company and a person whose

accounts are required to be audited.

Perquisite versus Fringe Benefit :

With the shifting of the tax liability on employer from employees in respect of

certain fringe benefits, these fringe benefits that were hitherto taxable in the hands of the

employees as perquisites, will no longer be taxable in the hands of the employees. For

this, Rules for valuation of perquisites have been amended vide notification no.68/2005

dated 28thFebruary, 2005, where by Rule 2 relating to valuation of motor car perquisite,

Rule3(6)relating to free or concessional journey given to transportemployees,Rule3(7)(ii)

to 3(7)(vi)relating to value of travelling, free meals, gift, credit cards, club facility and

Rule 3(8) relating to valuation of any other benefit and exempting expenses on

telephones having withdrawn. Further, clause (vi) of Section 17(2)has been amended to

provide that only those fringebenefit and amenity shall be included in the perquisite of



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the employees, which are not chargeable to tax under fringebenefittax. The meaning of

this will be that those benefit or amenity, on which tax is payable by the employer as

fringe benefit tax will not be included in the income of the employees. Similarly,

subsection (3) of Section 115WB has been inserted in the chapter on the FringeBenefit

Tax to provide that privilege, service, facility or amenity does not include perquisite in

respect of which tax is paid or payable by the employee. Income of the employee in view

ofthe provisions of the Section 17(2), the same is not liable for any fringe benefit tax.

Thus, there exists mutual exclusion between the two What is taxable in the hands of

employee cannot be taxed as fringe benefits in the hands of the employer in view of

Section115WB (3) and what is taxable as fringebenefit in the hands ofemployer cannot

be taxed in the hands of employees in view of amended clause (vi) of Section17(2) of the

Act. Thus, there is no scope of double taxation .House rent allowance, rent free

accommodation, transport allowance, leave travel concession, perquisite on account of

reimbursement of medical expenses (in view of proviso to Section 17(2)), interest-free or

concessional loan, sup-ply of gas, electric energy or waterf or household consumption,

use of mobile assets and transfer of mov-able assets shall not be liable for FringeBenefit

Tax and shall be considered as perquisite in the hands of the employee only of course

after considering exemption


TAXATION

In case of failure to pay the tax for any quarter, or where the tax paid is less,

there shall be a liability to pay interest at the rate of 1% on the amount of the short

fall for every month or part of the month till short-fall continues. Liability to pay

interest under the FringeBenefit Tax is on monthly basis and shall continue till the

date it is actually paid. In respect of such perquisite, if, any available under the Act.

However, facility or amenity extended to the employees by way of motor car, free meal,

gift, credit card, club facility, telephone is not to be included in the hands of theemployees as perquisites as these are now to be taxed as fringe benefits in the hands of



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the employer. The new FringeBenefitTax in a way has given an additional increment to

the employees as their liability to pay tax in case they are enjoying facility or amenity by

way of motor car, etc, will get reduced by the amount oftax which would otherwise have

been payable every month by way of deduction oftax at source.

Business Expenditureversus FringeBenefit

An important issue after levy ofFringeBenefitTax is the disallowance of the

expenditure incurred under Section 37(1) on account of personal use in view of the fact

that the provision of Sec 37(1) has not been amended to provide any exclusion. As perprovision of Section 37(1), expenditure incurred wholly and exclusively for the purposes

of business or profession not being in the nature of capital expenditure or personal

expenses is allowable. Thus, expenditure incurred by any employer, which is of personal

nature, will not be allowable expenditure even after payment of FringeBenefitTax. It

may be clarified that expenditure incurred on employees, i.e., where the relationship is

that of employer-employee, is not considered to be personal in nature as any payment or

expenditure incurred on employee is in consideration of services provided by the

employee and as such is for business purposes. Thus, there cannot be any disallowance

under Section 37(1) in respect of expenditure incurred on the employee. However, where

there is no employer-employee relationship, such as expenditure incurred on partners or

non-employee directors, if the expenditure incurred is of personal nature and not for

business purposes, the same will not be eligible for deduction under Section 37(1) of the

Act and consequently, there will not be any liability to pay fringebenefittax on such



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expenditure as the expenditure has not been incurred in the course of business or

profession. However, where the expenditure incurred for partners or non-employee

directors is relatable to business and there may be some element of personal nature in

such expenditure, such as use of motor cars, etc, the same need not be disallowed now as

the same is liable for fringe benefit tax by capturing the personal element of such

expenditure as otherwise it may lead to double taxation. FringeBenefitTax is a new

law. As is the case with any new law, many issues will arise on its interpretation and

application. One can only hope that all such issues get sorted out and clarified at the

earliest.

THE CHARTERED ACCOUNTANT1704JUNE 2005

With the introduction ofFringeBenefitTax, the expenditure heads need

to be revised so that the expenditure not liable for fringebenefit do not get

merged with expenditure liable for this Tax. For example, hospitality provided to

employees by way of food and beverage in office or factory or by

way of paid vouchersneed to be debited undera separate head other

than the employee well-fare/staff welfare expenditure.

TAXATION

INVITATION FOR CONTRIBUTING ARTICLES FOR COMING ISSUES

We have decided to bring out the July 2005 issue of The Chartered Accountant as

special issue on the theme Accountancy Profession in Global Perspective to mark the

56th Chartered Accountants Day (July 1, 2005). The professionals are invited to

contribute articles on the theme from both national and international angles. The articles

should not exceed 4,000 words each. Every article should have an Executive Summary of

about 100/150 words, authors e-mail ID, postal address and contact numbers along with



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a passport size photograph. Theme for other future issues is: August Service Tax

September SMPs and SMEs The articles for the July 2005 special issue should reach us

by June 9, 2005 while the write-ups for August 2005 issue should reach us by July 9,

2005.The articles can be sent to us by e-mail at [email protected] / [email protected]

or by post (two manuscripts along with a soft copy of article, e-mail Id and passport size

photograph) to The Editor, The Chartered Accountant, Journal Section, ICAI, PO Box

7100, New Delhi 110002. The contributors may go through the Guidelines for Authors

of The Chartered Accountant Journal hosted on the website of the Institute at the link

http://www.icai.org/announ/guidelinesauthors.html for reference.

INTRODUCTION

India's Finance Bill 2005 recently introduced the controversial Fringe Benefits Tax,

which has compelled the business community to rethink and redesign their pay systems.

Hewitt asked companies in India what they really think of it.

Perhaps the most discussed Act of the year; the government's decision to impose a tax on

fringe benefits provided by employers in India has come under close scrutiny from local

business, sparking off much debate in the corporate world. Viewed by many as unfair, the

general feeling is that the tax will have a significant impact on organizations both

financially as well as administratively.

The Fringe Benefits Tax



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Effective from April 1, 2005, the Fringe Benefits Tax (FBT) directly targets

perquisites provided by an employer to his employees, over and above their basic wages.

It levies a 33.6 percent tax on many benefits including:

Any privilege, service, facility or amenity provided by the employer to the

employee;

Reimbursements made directly or indirectly to the employee;

Free concessional tickets for private journeys of employees or their family

members; and

Employer contributions to approved superannuation funds.

The following expenses shall also come under the purview of fringe benefits, even if

they are a business expense:

Entertainment;

Festival celebrations;

Gifts;

Use of club facilities;

Provision of hospitality including food and beverage;



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Maintenance of guest houses;

Conference attendance;

Employee welfare;

Use of health clubs and similar facilities;

Sales promotions including publicity;

Conveyance, tour and travel, including foreign travel

expenses;

Hotel board and lodging;

Running costs of vehicles, including repair and

maintenance;

Use of telephones; and

Sponsorship of employees' children.

The impact of the FBT

Whatever the compromise organizations reach in terms of who pays for the tax, one thing

is clear. Companies will need to differentiate between costs incurred for business

purposes and those incurred as benefits to employees. And they will also have to asses the

relative value of employee engagement activities such as social gatherings and festival

celebrations.



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Companies need to develop a very clear strategy to ensure that their rewards

framework matches the strategic needs of the business and that the

mechanics of the total rewards structure reinforces the desired corporate

culture and management style. Strategy should focus on providing

meaningful choices to a diverse work force that support desired behaviors,

while ensuring optimum return of investment for the business. Suri

comments, "The general sentiment across companies in India is that the FBT

is not a progressive form of taxationIndia's Finance Bill 2005 recently introduced the controversial fringe Benefits tax, which has

compelled the business community to rethink and redesign their pay systems. Hewitt askedcompanies in India what they really think of it.

The Fringe Benefits Tax

Effective from April 1, 2005, the fringe Benefits tax(FBT) directly targets

perquisites provided by an employer to his employees, over and above their basic wages.

It levies a 33.6 percent tax on many benefits including:

Any privilege, service, facility or amenity provided by the employer to the

employee;

Reimbursements made directly or indirectly to the employee;

Free concessional tickets for private journeys of employees or their family

members; and

Employer contributions to approved superannuation funds.



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Fringe Benefits Tax (FBT)

Since its inception in 1986, calculating FBT has become highly technical and

complex. With extensive experience in guiding businesses through FBT, we offer

pragmatic, straight forward advice and assistance around:

The FBT treatment of specific benefits and opportunities to potentially

reduce liability

Your systems and compliance processes

Annual FBT compliance obligations including reviewing and/or

preparing your FBT return

Identifying available exemptions and

The Honble Finance Minister in the Finance Bill 2005 had proposed to levy tax

in the hands of the employer in respect of the benefits being extended to the employees by

such employer. The objective, as stated by the Finance Minister, is the difficulty in

isolating the personal elements in respect of the benefits provided to the employees where

there is a collective enjoyment of such benefits for purposes of business but includes

partially the benefit of personal nature. After the introduction of the Bill many issues

were raised by the trade, industry and chambers. After extensive consultations and

deliberations the initial proposal put for-ward in the Finance Bill 2005 was modified. The

salient features of the fringe benefit tax after amend-mint and notification of the Finance

Act, 2005 are as under:

A. Applicability

The fringe benefit tax is a tax to be paid by an employer in addition to the income

tax payable for every assessment year starting from the assessment year 2006-07. The

taxis to be paid in respect of the fringe benefits provided or deemed to have been

provided by an employer to his employees. The liability to pay fringe benefit tax shall be

there even when there is no liability to pay income tax by an employer. Accordingly, all



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those who fall within the definition of employer shall be required to pay tax on the fringe

benefits provided to the employees irrespective of the fact that income, which an

employer is earning, is exempt under the Income Tax Act or there is a loss. Accordingly,

those entities which are claiming exemption under Section 10 such as mutual funds,

undertakings in free trade zone claiming exemption under Section10A, export oriented

units claim-ing exemption under Section 10Bor under Section 10BA, shall be liable to

pay the fringe benefit tax. The is a fringe benefit tax ability of the tax of the employees to

beborn by the employer. That is wh yeven loss making entities and entities whose income

is exempt shall also be required to pay fringe benefit tax.

B. Meaning of Employer

The liability to pay fringe benefit tax is on the employer. For this purpose an

employer shall mean a company, a firm, an association of persons or a body of

individuals, a

local authority and every artificial.

INDUSTRY PROFILE

The Aerospace and Defense Industry was struggling to maintain profitability even

before 11th September 2001, and fears of further terrorism, the conflicts in Afghanistan

and Iraq, and a weak economy combined to devastate the commercial Aerospace Industry

over the ensuing years. On the other hand the wars in Afghanistan and Iraq have bolstered

the coffers if many defense companies, though belt tightening may be on the way.



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Organization Study

The mother of all defense deals occurred in 2001 when Lockheed beat out Boeing for

the $200 billion joint Strike Fighter contact, the largest Defense contract ever. Spread out

over almost 30 years, it may be the last major deal for drones ( as evidenced in

Afghanistan with the use of General Atomics Predator) is expected to continue,

supplanting the need for the more expensive manned Aircraft and making it unnecessary

to risk pilots lives in comb it.

In the interim, the soaring costs in Iraq have also put a damper on some other major

projects. In 2004 the US Army cancelled the planned $40 billion apache reconnaissance

helicopter program; early in 2005 there was talk of scaling back the F/A-22 Raptor

program and of reducing the number of C-130J Aircraft on order.

A desire to be smart, fast and mobile has replaced the more and bigger doctrine of

the Cold War. To the end, several companies including Lockheed Martin. Northrop

Grumman and General Dynamics have invested in hardware and software companies that

focus on Government Customers. The top Defense contractors are Lockheed Martin.

Boeing Northrop Grumman, BAE SYSTEM, Raytheon, General Dynamics, Thales and

EADS.

On the commercial side, airlines by far the biggest customers in the sector have

lost billions since 2001. By way of illustration, the top nine airlines lost $10 billion in2002, almost $6 billion in 2003, and about $4 billion in 2004, and both UAL (the parent

of United Airlines) and US Airways have filed for bankruptcy protection. As mentioned

previously, September 11 and subsequent travel fears dealt a devastating blow to a

commercial aircraft market that was already reeling from a market slowdown. That

market, which accounts for about 40%of Aerospace and Defense industry spending is

divided into four segments: large commercial aircrafts ( planes of 100 seats and more);

maintenance, repair and overhaul; jet engines and business and regional aircraft (less than

100 seats).



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Organization Study

In 2001 Boeing and Airbus, the worlds only large commercial aircraft market,

saw orders plummet by 45% and 28%, respectively, Airbus recently surpassed Boeing in

orders, but the . Formers 2002 delivers dropped 7% from 2001. Boeing meanwhile

experienced a staggering 28% decline in deliveries from 2001. As a result the drastic fall-

off in business. Boeing cut about 30000 jobs or roughly 30% of its commercial aircraft

workforce in 2002.

Aircraft orders picked up in 2003 and 2004 as Boeing and Airbus continues to

duke it out for airline orders. Boeing is working on its long-range, fuel-efficient, mid-

sized, 7E7 Dream liner (due in 2008), and a 550 passenger behemoth. Airbus then upped

the ante by announcing that it would built the A350 (due in 2010) to compete directly

with Boeing 7E7.

The maintenance, repair and overhaul, jet engine, and business and regional

aircraft markets have suffered right along with airlines and large commercial aircraft

makers. The biggest regional aircraft makes are Bombardier, Gulf Stream and Textrons

Cessna Unit. GE Aircraft Engines, Rolls Royce, and Pratt & Whitney are the three largest

jet engine makers.

The space market is made up of two primary segments; satellites and rocket

manufacturing and launch services.

The major players include Boeing, Lockheed Martin, Northrop Grumman, Alcatel

Space, Astrium, Orbital Sciences and Arianespace. Expectations for the long-term

profitability of the space market continue to outstrip the short-term realities, but

companies continue to invest in this area. Even before the terrorist attacks, Boeing for

example, was placing more emphasis on this market in its strategic thinking, and

proposed a sweeping overhaul of the worlds air traffic control system.

Aviation is one of the most significant technological influences of out time and

empowers the nation with strength. It is a major tool for economic development and has a



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significant role in National Security and International Relations. India has been fortunate

to have started Aeronautics related activities in 1940, with the establishment of HAL. The

Company was conceived by the visionary and far sighted industrialist, Sir Walchand

Hirachand in December 1940 in association with the Government of Mysore.

COMPANY PROFILE



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Seth. Walchand Hirachand

Hindustan Aeronautics Limited (HAL) came into existence on 1st October1964. The Company was formed by the merger of Hindustan Aircraft Limited with

Aeronautics India Limited and Aircraft Manufacturing Depot, Kanpur.

The Company traces its roots to the pioneering efforts of an industrialist with

extraordinary vision, the late Seth Walchand Hirachand, who set up Hindustan Aircraft

Limited at Bangalore in association with the erstwhile princely State of Mysore in

December 1940. The Government of India became a shareholder in March 1941 and took

over the Management in 1942.

Today, HAL has 19 Production Units and 9 Research and Design Centres in 7

locations in India. The Company has an impressive product track record - 12 types of

aircraft manufactured with in-house R & D and 14 types produced under license. HAL

has manufactured over3550 aircraft, 3600engines and overhauled over8150aircraft

and 27300 engines.

HAL has been successful in numerous R & D programs developed for both

Defence and Civil Aviation sectors. HAL has made substantial progress in its current

projects:

Dhruv, which is Advanced Light Helicopter (ALH)

Tejas - Light Combat Aircraft (LCA)

Intermediate Jet Trainer (IJT)

Various military and civil upgrades.



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Dhruva delivered to the Indian Army, Navy, Air Force and the Coast Guard in

March 2002, in the very first year of its production, a unique achievement.

HAL has played a significant role for India's space programs by participating in the

manufacture of structures for Satellite Launch Vehicles like

PSLV (Polar Satellite Launch Vehicle)

GSLV (Geo-synchronous Satellite Launch Vehicle)

IRS (Indian Remote Satellite)

INSAT (Indian National Satellite)

HAL has formed the following Joint Ventures (JVs) :

BAeHAL Software Limited

Indo-Russian Aviation Limited (IRAL)

Snecma HAL Aerospace Pvt Ltd

SAMTEL HAL Display System Limited

HALBIT Avionics Pvt Ltd

HAL-Edgewood Technologies Pvt Ltd

INFOTECH HAL Ltd

Apart from these seven, other major diversification projects are Industrial Marine Gas

Turbine and Airport Services. Several Co-production and Joint Ventures with

international participation are under consideration.

NATURE OF THE BUSINESS CARRIED:

HAL's supplies / services are mainly to Indian Defence Services, Coast Guards

and Border Security Forces. Transport Aircraft and Helicopters have also been supplied

to Airlines as well as State Governments of India. The Company has also achieved a



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foothold in export in more than 30 countries, having demonstrated its quality and price

competitiveness.

HAL has won several International & National Awards for achievements in R&D,

Technology, Managerial Performance, Exports, Energy Conservation, Quality and

Fulfillment of Social Responsibilities.

HAL was awarded the INTERNATIONAL GOLD MEDAL AWARD for

Corporate Achievement in Quality and Efficiency at the International Summit

(Global Rating Leaders 2003), London, UK by M/s Global Rating, UK in

conjunction with the International Information and Marketing Centre (IIMC).

HAL was presented the International - ARCH OF EUROPE Award in Gold

Category in recognition for its commitment to Quality, Leadership, Technology

and Innovation.

At the National level, HAL won the "GOLD TROPHY" for excellence in Public

Sector Management, instituted by the Standing Conference of Public Enterprises

(SCOPE).

The Company scaled new heights in the financial year 2008-09 with a turnover of

Rs.10,373 Crores

DIVISIONS OF HAL

The Hindustan Aeronautics Limited is divided into a number of divisions having

there their respective factory setups in different parts of the country. These individual

setups work independently and contribute towards the overall requirements of the entire

Corporation. Each division specializes in specific areas of the development of the

aeronautics and provides the required service at the required stages of the manufacturing

process. The various divisions are



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http://www.hal-india.com/overhauldivision.asphttp://www.hal-india.com/imgtdivision.asphttp://www.hal-india.com/helicopterdivision.asphttp://www.hal-india.com/foundryandforgedivision.asphttp://www.hal-india.com/enginedivisionkoraput.asphttp://www.hal-india.com/enginedivisionbangalore.asphttp://www.hal-india.com/avionicsdivisionkorwa.asphttp://www.hal-india.com/avionicsdivisionhyderabad.asphttp://www.hal-india.com/aircraftdivisionbangalore.asphttp://www.hal-india.com/aircraftdivisionnasik.asphttp://www.hal-india.com/aerospacedivision.asphttp://www.hal-india.com/accessoriesdivision.asp


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VISION, MISSION OBJECTIVES AND QUALITY POLICY

VISION

To make HAL a dynamic vibrant, value based learning organization with human

resources exceptionally skilled, highly motivated & committed to meet the current &

future challenge. This will be driven by core values of the Company fully embedded in

the culture of the organization.

MISSION

To become a globally competitive aerospace industry while working as an instrument for

achieving self-reliance in design, manufacture and maintenance of aerospace defense

equipment and diversifying to related areas, managing the business on commercial lines

in a climate of growing professional competence".

PRODUCT / SERVICE PROFILE:

Aircarft Engine

http://www.hal-india.com/transairdivision.asp


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Jaguar Adour 804/811

Hawk Adour 871

Advanced Light Helicopter TM 333

Aircarft Engine



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Cheetah Helicopters Artouste III B

chetak Helicopters Artouste III B

Dornier 228 GARRETT 331 5

Aircarft Engine



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Kiran MK II ORPHEUS 70105

HS 748 DART 533

Seaking Helicopters Gnome 1400 IT

Aircarft Engine



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Canberra / Hunter AVON

LCA GTSU

PTA 7 PTAE-7

SERVICE :

Service facilities in HAL Engine Division



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1. Repair and Overhaul of Engines

2. Spectro Photo-metric Oil Analysis (SOAP test)

3. Electron Beam Welding

4. Robotic Plasma Spray Facility

5. Sermetal Coating (High Temperature Corrosion Resistance Painting)

6. Chemical Milling

7. Turn Key Basis - Design and Construction of Engine Test Beds.



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Organization Study

AREA OF OPERATION

OWNERSHIP PATTERN

The company is under the ministry of defense (Government of India). It is fully

governed and controlled by Government of India through ministry of defense. Its day to

day activities and operation is looked after by a group of people appointed by the

Government of India, Directors and Members, who are answerable to the Government of

India.

COMPETITORS INFORMATION

The company does not have any competitors in domestic market, for its aircraft. It

requires huge sum of money and vast area of land for establishing a company and it also

involves huge risk, which the private parties would not like to take. The aircraft division

manufactures aircrafts purely for countries defense purposes. So its main customer is IAF

(Indian Air Force).



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Organization Study

But the company is having few competitors for its export projects like Boeing &

Airbus doors. From countries like China and Pakistan.

Since the incorporation of the HAL, it has never experienced competition as such

being the monopolistic organization in the manufacturing aircrafts in the nation. But with

the pass of time different organizations like Infosys, Satyam, Tata Consultancy Services

and few other companies have given a threatening call to HAL in design works of

aircrafts using Computer Aided Design. These companies have also indulged in poaching

of employees from HAL by offering good salary and perks.

INFRASTRUCTURAL FACILITIES

EDUCATIONAL FACILITIES

The company has established schools at Bangalore, Hyderabad, Koraput, Nasik,

Lucknow, Kanpur and Korwa districts for the benefits of the employees children. The

administration of these schools is vested in the educational committees constituted for thepurpose in respective divisions. The company, to the extent possible provides

accommodation, failure and equipment for the schools. Tuition fees charges in the

schools vary from place to place depending upon the grant in aid if any received from the

State Governments and other recurring/non-recurring expenditure connected with the

running of the schools.

SPORTS CLUB

With a view to develop sports talent amongst the employees sports club have

been established in the divisions. The company provides playgrounds, accommodation

and grant for encouraging sports activities. Membership in sports club is open to all

employees. Sports grounds and club buildings are maintained at companys expenses. In

order to streamline sports activities in the divisions, comprehensive scheme for

encouraging sports is also in vogue of the company.



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CO-OPERATIVE SOCIETIES

Co-operative societies formed by the employees are functioning in township with

assistance provided by the management. The run stores for the supply of essential articles

of daily use, fair price shops etc.

OFFICERS CLUB

The company encourages formation of officers club in the divisions to facilitate the

recreational and cultural activities of officers and their family members. Accommodation

on normal rent is provided to the clubs. The company also provides financial assistance

for the functioning of the clubs.

TRAINING HALLS

HMA has five air-conditioned and acoustically-treated training halls with seating

capacity varying from 15 to 50, with flexible seating arrangements. Each classroom is

equipped with an Overhead projector, writing board, Public Address System, Digital

Light Processing Projector (DLP), computer with the necessary state-of-the-art software

to make presentations.



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Organization Study

LIBRARY

A good library with over 12000 books mainly on management topics, a number of

professional journals and an impressive collection of audio-visual aids supplement

classroom learning and assignments.

AUDITORIUM

An auditorium air-conditioned and acoustically designed with 180 seats is also available

for viewing films / videos and conducting seminars. A well-lit dais is also suitable for

cultural Programs by participants.

ACCOMMODATION

Forty fully furnished twin occupancy rooms and five dormitories provide accommodation

for a hundred participants. A neat and tidy cafeteria within the campus provides nutritious

food and caters to the palate of the participants from all over the country

RECREATION CENTER

The recreation centre is equipped with a home-gym, facilities for indoor and outdoor

sports and also a television set, which provide the participants the much needed relaxation

during the off-hours and holidays. A lot of newspapers and magazines are also available.



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Organization Study

ACHIEVEMENTS / AWARDS :

MoU Award for Excellence in Performance for the year 2002-03 as one of the

Top Ten PSEs.

_ Engineering Export Promotion Council (EEPC) Award for the 10th consecutive

year.

_ Arch of Europe Award for quality and Technology in the GOLD CATEGORY

from Business Initiative Directions (BID), Madrid, Spain

_ The Engine Division has been credited with ISO 9002 Certificate from December

1995 onwards

_ Laboratory is approved by Honeywell, USA as authorized 'SOAP' (Spectrometric

Oil analysis Programme) facility for Garrett Engine.

AWARDS

Government of India has HAL as an excellent performer under Memorandum of

Understanding criteria.

HAL was awarded Regional Top Exporter Shield for exporting products and

services to the tune of Rs. 40 crore.

The helicopter division was awarded the Jawaharlal Nehru trophy for best

production division of HAL for 1972 to 1994.

It is received highest rating LAAA for long term debts and AIT for short term

debts from Investment and Credit Rating Agency.

HAL Kanpur was awarded Rajya Sabha shield by Kanpur town official language

implementation committee.

Avionics division, Hyderabad has got a National award for R & D in electronics

from DSIR, Ministry of Science and Technology.

Hal is one of the two firms to be awarded as A Grade by the combined team of

vendor quality approval was Aerospatiale and Dassault aviation who audited air

craft division in November December 1997.



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FUTURE GROWTH AND PROSPECTS

HAL has inked Joint venture with Sukhoi. HAL formed a joint venture with Russian

Sukhoi aircraft manufacture to produce a passenger Jet. HAL is trying for a joint venture

for the Jet air craft and also studying the viability of the project. Senior officials of

Bangalore based HAL said.

The officials were to a group of Indian newsman at the MAKS 2005 air show. Under

the Russian Region jet (RRT) program, Sukhoi Animation holding is developing a familyof jet to carry 60, 75 and 95 passengers co-designed by Boeing, the jet is scheduled to

make its maiden Flight by 2007 with deliveries set to begin in 2008, sources in the

companys civil aircraft division said; Sukhoi proposed to sell 800 jet, by 2020, and most

of them to abroad, they said.

Mr. Ashok K Baweja, former Chairman of HAL, a public sector undertaking of

Government of India and Mr. Marc, Chairman and CEO of SNECMA, a SAFRAN group

company, France, saying the share holder agreement of new joint venture company at

Bangalore.

More specifically, the JVC will produce critical components for SNECMA as well as

for TURBOMECA, another company of SAFRAN GROUP, leader of Helicopter Engine.

In the beginning JVC. will start manufacturing CFM-56 engines, old most popular engine

that powers Boeing and Air Bus Air Craft.

During the occasion Mr. Ashok K Baweja, started that HAL and SNECMA have

been working together on several programmers and setting up of this joint venture

company will synergies, the best practice of both the companies, business related to civil

aeronautical sector offers enormous opportunities and both the partners would benefits in

a major way in the international market through this joint venture.



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MARKETING DEPARTMENT

CUSTOMER:

INTERNATIONAL CUSTOMER DOMESTIC CUSTOMER

Airbus Industrie, France

APPH Bolton, UK

BAE Systems, UK

Chelton, UK

Coast Guard, Mauritius

Corporate Air, Philippines

Cosmic Air, Nepal

Dassault Aviation, France

Dowty Aerospace Hydraulics,

UK EADS, France

ELTA, Israel

Hampson, UK

Honeywell International,

USA

Island Aviation Services,

Maldives

Israel Aircraft Industries,

Israel

Messier Dowty Ltd., UK

Mistubishi Heavy Industries,

Japan

MOOG, USA

Namibian Air Force, Namibia

Peruvian Air Force , Peru

Air India

Air Sahara

Airports Authority of India

Bharat Electronics

Border Security Force

Coal India

Defence Research & Development

Organization

Govt. of Karnataka

Govt. of Maharashtra Govt. of Rajasthan

Govt. of Uttar Pradesh

Govt. of West Bengal

Indian Airforce

Indian Airlines

Indian Army

Indian Coast Guard

Indian Navy

Indian Space Research Organisation

Jet Airways

Kudremukh Iron ore Company ltd.

Oil & Natural Gas Corporation Ltd.

Ordnance Factories

Reliance Industries

United Breweries



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Organization Study

Rolls Royce Plc, UK

Royal Air Force, Oman

Royal Malaysian Air Force,

Malaysia

Royal Thai Air Force,

Thailand

Smiths Industries, UK

Snecma, France

Strongfield Technologies, UK

The Boeing Aircraft

Company, USA

Transworld Aviation, UAE

Vietnam Air Force, Vietnam



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Organization Study

SWOT ANALYSIS

A Scan of internal and external environment is an important part of the strategic

planning. Environment factors internal to the firm usually to be classification as the

strengths or weakness and those external to the firm can be classified as the opportunities

or threats. Such as analysis of the strategic environment is referred as SWOT

ANALYSIS.

The SWOT analysis provides information that helps in matching the firms resources

and capabilities to competitive environment on which it operates. As such it is an

instrument in the strategy formulation and selection in and administration if the company.

STRENGTHS:

Company having good market image, and prestige with innovative

technology up gradation.

Having been established in 1964 .HAL has gained wide market share and

also has become familiar to many customers.

Bell is an ISO 9001 and iso14001 certified company and lays great

important.

On quality and environment responsibility

R and D strength to design and develop Engines with good technology in

as per requirements of the markets.



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Hal has wide market network spread over the country as experienced in

export business also.

Hal has a wide network of depots and over number of dealers spread over

the nation.

Comprehensive support infrastructure and training facilities.

Heating and ventilation blocks and harmonious management employee

relationship.

Hal has a good industries relation by effective .has won the prestigious

award for export twice.

Product rang to our consumers and high degree of participating

management.

The bell philosophy istotally customer centric. It seeks to satisfy the end

customer in all respects.

profits of the company during the last few years is increasing so HAL can

expand their business

OPPORTUNITIES:

The product of Hal comprises wide range to cater different needs of customer

so it can utilize this opportunity against competitors thread.

Company can grab the market with small period as it is already established



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Organization Study

CONCLUSION

HAL is widely spread throughout the country. It has got its liaison offices even abroad

i.e. Russia and London (U.K) it reports to director finance of HAL.The type HALorganization chart is functional. Organization chart which is vertical too.Ministry of

defence of Government of India is the owner of HAL. So far no public issue is brought

by the company.

HAL is engaged in manufacturing Aircrafts/Helicopter/other Avionics meant for Indian

Air Force/Army/Navy/BSF/various programs related to space. Therefore its customers

are defence and non-defence both.HAL - Engine division is involved in manufacturing,

repairing overhauling the Engines for Aircrafts/Helicopter/Missiles.HAL is known for itsquality products.

Principle of departmentation is applied on division for HAL. So HAL - Engine division

is bifurcated into many departments for smooth functioning and achieving production

targets as per the formed tasks assigned time to time by its defence and non-defence

customers. In case of HAL departmentation is based on various functions i.e. production,

marketing, finance, purchase etc.HAL follows proper design, drawings and various

departments of HAL - Engine



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Organization Study

Conclusion:

Therefore, from the above we can clearly understand the reason why the center(Finance

Ministry) has enacted this Fringe Benefit Tax. This will surely act as a boon as this tax is

nothing but an economic security measure that is enhanced by the Government in order to

achieve the equality and also increase the government fund through a rightful mean.

Hence, FBT is constitutionally valid. Whereby, its time for the Government to make

clarifications as to the doubts that has raised in the application of FBT.

[1] In Australia, when you invite your client to a meal what you spend on your own lunch

will attract fringe benefit tax, and not what you spend on your client's lunch, which is

marked as business expense.(an illustration)

[2] Source: Rediff Business Desk dated onMarch 22, 2005

[3]Given under Section 115WB of Income tax Act, 1961.

[4]115W. In this Chapter, unless the context otherwise requires,(a) employer means,

(i) a company;

(ii) a firm;

24[(iii) an association of persons or a body of individuals, whether incorporated or not;]

(iv) a local authority; and

(v) every artificial juridical person, not falling within any of the preceding sub-clauses:

25[Provided that any person eligible for exemption under clause (23C) of section 10 orregistered under section 12AA or a political party registered under section 29A of the



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Organization Study

Representation of the People Act, 1951 (43 of 1951) shall not be deemed to be an

employer for the purposes of this Chapter;]

(b) fringe benefit tax or tax means the tax chargeable under section 115WA.

[5]Source: Rediff Business Desk dated onMarch 22, 2005

[6] Now, it acts as a major source of share in service sector and makes a highest

contribution in providing employment opportunities and profit earning.

[7] Hoechst Pharmaceuticals Ltd. .v. State of Bihar AIR 1983 Sc 1019, State of Kerala .v.

Aravind Ramkant Modawakr (1999) 7 SCC 400

[8] Article 14: No person shall be deprived his life or personal liberty except according

to procedure established by law.

[9] Maneka Gandhi .v. Union of India, AIR 1978 SC 597, R.D. Shetty. v. Airport

Authority, AIR 1979 SC 1628

[10] Article 19(1)(g) : all citizens shall have the right to practice any profession , or to

carry on any occupations , trade or business.

[11] Article 301: Freedom of trade, commerce and intercourse subject to the provisions of

this part , trade , commerce, and intercourse throughout the territory of India shall be free.

[12] Schedule VII List 1 Union List of our Indian Constitution.

Fringe benefit tax (FBT): Calculating fringe benefit tax

Alternate rate calculation process

NoteFrom 1 October 2010 personal tax rates have changed, so the higher FBT rate of

61% has reduced to 49.25%. The following information is using the rates from 1

October 2010 onwards. If you are calculating your FBT requirements for periods

prior to 1 October 2010, you will need to use the previous rates.

How it works

The alternate rate calculation process allows an employee's fringe benefits to betaxed at their marginal tax rate. It ensures that fringe benefits of employees



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earning less than $70,000 are not over-taxed (as they may be under the single

rate option). An alternative is the short form alternate rate option.

Note

Calculations used to complete the alternate rate options are calculated in your

annual income year or in the fourth/final quarter returns (quarters 1 to 3 should be

calculated using the single rate option of 49.25% or the alternate rate option of

43%).

If you want to use the alternate rate system to calculate fringe benefit tax on anemployee's fringe benefits:

ensure you have the information required

follow the four steps required (or use the alternate rate calculator, which

does the calculation for you)

undertake other calculations required

keep the required records.

You should be aware of some specific issues if you are calculating fringe benefit

tax for shareholder-employees or employees receiving attributed income.

You will need more information

To complete the alternate rate calculation process, you need to know:

cash remuneration details for each employee to whom fringe benefits havebeen attributed

the taxable value of the fringe benefits that have been attributed to

individual employees.

Complete the calculations for your annual return or, if you file on a quarterly

basis, as part of the final quarter return.

http://www.ird.govt.nz/fbt/calculating/fbt-multirate.html#infohttp://www.ird.govt.nz/fbt/calculating/fbt-multirate.html#stepshttp://www.ird.govt.nz/fbt/calculating/fbt-multirate.html#othercalculationshttp://www.ird.govt.nz/fbt/calculating/fbt-multirate.html#recordshttp://www.ird.govt.nz/fbt/calculating/fbt-multirate.html#stepshttp://www.ird.govt.nz/fbt/calculating/fbt-multirate.html#othercalculationshttp://www.ird.govt.nz/fbt/calculating/fbt-multirate.html#recordshttp://www.ird.govt.nz/fbt/calculating/fbt-multirate.html#info


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Follow these steps to calculate the net cash remuneration

1. Calculate the net cash remuneration. Use the table below to calculate the

tax on gross cash remuneration.

2.

2009-10 income tax rates

Employee's gross cash

remuneration

Tax rate

per dollar

Cumulative

balance

$0 to $14,000 12.5% $1,750.00

$14,001 to $48,000 21% $8,890.00

$48,001 to $70,000 33% $16,150.00

$70,001 and higher 38% -

3.


Employee's gross cash

remuneration

Tax rate

per dollar

Cumulative

balance

$0 to $14,000 11.5% $1,610.00

$14,001 to $48,000 19.25% $8,155.00

$48,001 to $70,000 31.5% $15,085.00

$70,001 and higher 35.5% -



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Employee's gross cashremuneration

Tax rateper dollar

Cumulativebalance

$0 to $14,000 10.5% $1,470.00

$14,001 to $48,000 17.5% $7,420.00

$48,001 to $70,000 30% $14,020.00

$70,001 and higher 33% -

2. Add the value of attributed fringe benefits to the net cash remuneration

calculated in step 1. This is the employee's fringe benefit-inclusive cash

remuneration.

3. Calculate the tax payable on the fringe benefit-inclusive cash remuneration

(that is, the answer to step 2), using the rates below:

4.

2009-10 alternate rates

Income range Tax rate Cumulative balance

$0 to $12,250 14.29% $1,750.00

$12,251 to $39,110 26.58% $8,890.00

$39,111 to $53,850 49.25% $16,150.00

$53,851 and higher 61.29% -

5.



$0 to $12,390 12.99% $1,609.00

$12,391 to $39,845 23.84% $8,154.00

$39,846 to $54,915 45.99% $15,085.00

$54,916 and higher 55.04% -

6.




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$0 to $12,530 11.73% $1,469.00$12,531 to $40,580 21.21% $7,419.00

$40,581 to $55,980 42.86% $14,019.00

$55,981 and higher 49.25% -

4. From the tax payable on the fringe benefit inclusive cash remuneration

(that is, the answer to step 3), deduct tax calculated in step 1 on the cash

remuneration. The result is the FBT payable on that employee's fringe

benefits.

Example

During 2009-10 Ted, an employee, receives a salary of $50,000, a bonus of

$2,000, and fringe benefits of $5,000.

His employer follows the four steps of the alternate rate calculation process:

1. Calculate the net cash remuneration.Net remuneration = $52,000 less $10,210 (tax on gross cash remuneration) =

$41,790

2. Add the value of attributed fringe benefits to the net cash remuneration to

get Ted's fringe benefit-inclusive cash remuneration.

Value of fringe benefits plus net remuneration = $5,000 plus $41,790 = $46,790

3. Calculate the tax payable on the fringe benefit-inclusive cash

remuneration.Tax payable on $46,790 = $12,671.00

4. Deduct the tax calculated in step1 from the tax payable to get the FBT

payable.

$12,671.00 less $10,210 = $2,461.00

The FBT payable on Ted's fringe benefits is $2,461.00.

Other calculations you need to do



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Organization Study

As well as calculating the FBT payable based on the above steps, you must:

include calculations for non-attributed benefits taxed at the single rate:

o 2009-2010 - 49% (or 61% for major shareholder-employees)

o 2010-2011 - 45.99% (or 55.04% for major shareholder-employees)

o 2011-2012 - 42.86% (or 49.25% for major shareholder-employees)

make an adjustment for the fringe benefit tax assessed in quarters 1 to 3 if

you are a quarterly filer.

Keeping your records

When you use the alternate rate calculation process, you must maintain records

that will confirm the amount of fringe benefit tax you have calculated. The Fringe

benefit tax guide (IR409) gives more information on the records you should keep.

If you are completing the FBT alternate rate calculation sheet, you can transfer

the totals for each employee from the calculator to the FBT alternate rate

calculation sheet for your records. The taxable value calculation sheets show thetaxable value for each category of fringe benefits. For more detail on the records

required for each category, see:

motor vehicles

low-interest loans

free, subsidised or discounted goods and services

employer contributions to funds, insurance, health insurance and

superannuation schemes.

If you file quarterly returns and are completing an alternate rate calculation sheet

for the final quarter, you need:

FBT returns and FBT taxable value sheets for each quarter

annual payroll data for employees who received fringe benefits during any

of the four quarters.



59/71

Organization Study

You'll also receive a Fringe benefit tax return guide (IR425) with your final quarter

FBT retur

ENGINE DIVISION

Details showing TA\DA incurred for official the quarter ending 31/6/2005

Sl.no months particular amount

(4)

20/.on

item

(5)

33.66/.

tax on

item

1.1.apr05

2.may05

3.june05

Office computation

Office computation

Office computation

109453

311851

163982

21890

62370

32796

736.8

20993

11039



60/71

Organization Study

total 585286

2.1.apr05

2.may05

3.june05

Seminar&conference

Seminar&conferance

Seminar&conferance

4566

46300

16417

913.2

9260

32834

307.3

3.116

1.105

total 67283

3.1.apr05

2.may05

3.june05

Conveyance

reimbursement auto for

the period 1.7.05 to

30.9.05

406803 81360 27385

total 406803

ENGINE DIVISION


Sl.no months particular amount 20/.on item 33.66/.

tax on

item

1.1.july05

2.aug05

3.sep05

Office computation

Office computation

Office computation

203547

330731

499201

40709

66146

9984

13702

22264

3360



61/71

Organization Study

total 1033479

2. 1.july05

2.aug05

3.sep05

Seminar&conference

Seminar&conference

Seminar&conferance

15811

172152

360227

31622

34430

72045

106.43

1159

24250

total 548190

3. 1.july052.aug05

3.sep05

Conveyance


the period1.7.05 to 30.9.05

406803 81360 2738

total 406803

41.july05

2.aug05

3.sep05

Gift vouchers

Gift vouchers

Gift vouchers

13500 2700 908.8

total 13500

ENGINE DIVISION



tax on

item

1.1.oct05

2.nov05

3.dec05

Office computation

Office computation

Office computation

158260

443336

228102

31652

88667

45620

1065

29845

1535

total 829698



62/71

Organization Study

2.1.oct05

2.nov05

3.dec05

Seminar&conference

Seminar&conferance

Seminar&conferance

20216

67409

158881

4043

13481

31776

1360

4537

10695

total 246506

3.1.oct05

2.nov05

3.dec05

Conveyance



31.12.05

208928 41785 14065

total 208928

41.oct05

2.nov05

3.dec05

Gift vouchers

Gift vouchers

Gift vouchers

40500 8100 2726

40500

ENGINE DIVISION


Sl.n

o

months

particular

amount 20/.on

item

33.66

/. tax

on

item

1.1.jan06

2.feb06

3.mar06

Office computation

Office computation

Office computation

366456

4224627

291640

73291

844925

58328

24669

28440

19633

total 4882723



63/71

Organization Study

2.

1.jan06

2.feb06

3.mar06

Seminar&conference

Seminar&conferance

Seminar & conference

54181

29340

6000

10836

5868

3647

1975

total 89521

3.Mar06 Gift vouchers 24000 4800 1615

total 24000

ENGINE DIVISION

Details showing TA\DA incurred for official the quarter ending 30/6/2006Sl.no months particular amount 20/.on

item

33.66/.

tax on

item

1.1.mar06

2.apr06

3.may06

4.june06

Office computation

Office computation

Office computation

Office computation

472128

393744

66661

142037

94425

78748

13332

28407

31783

26506

4.487

9561

total 1074570

2.

1.mar06

2.apr06

3.may06

4.june06

Seminar&conference

Seminar&conference

Seminar&conferance

Seminar&conferance

24414

24458

12416

22632

4882

4981

2483

4526

1643

1646

835.8

1523

total 83920



64/71

Organization Study

3.

1.mar06

2.apr06

3.may06

4.june06

Conveyance

reimbursement auto

for the period 1.7.06

to 30.9.06

217019 43403 14609

total 217019

4

1.mar06

2.apr06

3.may06

4.june06

Gift vouchers

Gift vouchers

Gift vouchers

Gift vouchers

0

9000

7500

12000

0

1800

1500

2400

0

605.8

504.9

807.8

total 18000

ENGINE DIVISION



tax on

item

1.1.july06

2.aug06

3.sep06

Office computation

Office computation

Office computation

1213180

204519

356279

242.636

40903

71255

81671

13768

23984

total 1773978

2. 1.july06

2.aug06

3.sep06

Seminar&conference

Seminar&conference

Seminar&conferance

31558

191113

124373

6311.6

38222

24874

2124.4

12865

8372

total 347044



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Organization Study

3. 1.july062.aug06

3.sep06

Conveyance


the period1.7.06 to 30.9.06

235640 47128 15863

total 235640

41.july06

2.aug06

3.sep06

Gift vouchers

Gift vouchers

Gift vouchers

4500

6000

7500

900

1200

1500

302.9

403.9

504.9

total 18000

ENGINE DIVISION



tax on

item

1.1.oct06

2.nov06

3.dec06

Sept 06 surplus\short

Office computation

Office computation

Office computation

-246370

334222

6014860

319916

66844

1202972

63983

22450

404920

21536

total 6422631

2.1.oct06

2.nov06

3.dec06

Seminar&conference

Seminar&conferance

Seminar&conferance

267030

87682

487865

53406

17536

97573

17976

5902.7

32843

total 1014964

3.1.oct06

2.nov06

3.dec06

Conveyance


the period 1.10.06 to31.12.06

251625 50325 16939



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Organization Study

total 251625

4 1.oct062.nov06

3.dec06

Gift vouchers

Gift vouchers

Gift vouchers

7500

6000

6000

1500

1200

1200

504.9

403.9

403.9

19500

ENGINE DIVISION



tax on

item

1.1.jan07

2.feb07

3.mar07

Office computation

Office computation

Office computation

163526

2353819

450000

32705.2

470.763

90000

11008

152.45

30294

total 2787264

2.1.jan07

2.feb07

3.mar07

Seminar&conference

Seminar&conferance

Seminar&conferance

222195

17410

275000

44439

3482

55000

14958

1172.04

3366

total 9874000

3.1.jan07

2.feb07

3.mar07

Conveyance



31.3.07

327417 65483.4 22014.7

total 327417



67/71

Organization Study

41.jan07

2.feb07

3.mar07

Gift vouchers

Gift vouchers

Gift vouchers

10000

10000

10000

2000

2000

2000

673.2

673.2

673.2

total 30000

ENGINE DIVISION


Sl.no months particular amount 20/.onitem

33.66/.tax on

item

1.1.apr07

2.may07

3.june07

Office computation

Office computation

Office computation

345000

445000

1500000

69000

89000

300000

23225

29957

100980

total 2290000

2.1.apr07

2.may07

3.june07

Seminar&conference

Seminar&conferance

Seminar&conferance

15000

170000

6000

3000

34000

1200

1009.8

11444

403.9

total 38000

3.1.apr07

2.may07

3.june07

Conveyance



30.6.07

135000 27000 9088.2

total 135000



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Organization Study

4

1.apr07

2.may07

3.june07

Gift vouchers

Gift vouchers

Gift vouchers

40000

15000

45000

8000

3000

9000

2.692

1009.8

3029.4

100000

ENGINE DIVISION

Details showing TA\DA incurred for official the quarter ending 30/9/2007Sl.no months particular amount 20/.on

item

33.66/

. tax

1.1.july07

2.aug07

3.sep07

Office computation

Office computation

Office computation

-339579

170847

250000

275000

34169

50000

55000

11501

16830

18513

total 695847

2.Jun-07

1.july07

2.aug07

3.sep07

Seminar&conference

Seminar&conference

Seminar&conferance

Seminar&conferance

555098

5179189

275000

100000

111.019

1035837

55000

20000

37369

348.66

18513

6732

total 5554189

3.1.july07

2.aug07

3.sep07

Conveyance



30.9.07

70000 14000 471.24



69/71

Organization Study

total 70000

41.july07

2.aug07

3.sep07

Gift vouchers

Gift vouchers

Gift vouchers

35000

35000

35000

7000

7000

7000

2356.2

2356.2

2356.2

total 95000

LEARNING EXPERIENCE

Following are the findings after the study of HAL organization:

HAL is a very big organization which is spread throughout the country, in the

form of various divisions.

It's various divisions are under administrative control of various complexes for

smooth flow of activities and its closed supervision and by one of the CEO of that

complex i.e Managing Director.

HAL's various complexes report to its corporate off

Documents

Copy of balu