In taxation, what is Fringe Benefit Tax (FBT) and on whom is it levied?

Introduction / Context:
Fringe Benefit Tax, often abbreviated as FBT, has been an important concept in discussions of employer provided benefits and their tax treatment. Even though specific rules may change over time, the basic idea is that some non cash benefits provided by employers to employees also represent taxable value. This question checks your understanding of what FBT means and who is responsible for paying it.

Given Data / Assumptions:

• Employers sometimes provide benefits beyond basic salary, such as entertainment, travel, and perquisites.
• Tax authorities may choose to tax these benefits to ensure comprehensive taxation of compensation.
• FBT typically focuses on taxing the employer rather than directly taxing employees on each benefit.
• The question is conceptual and does not depend on current rate structures.

Concept / Approach:
Fringe Benefit Tax is designed to bring into the tax net the value of certain perks or benefits that employees enjoy but that may be difficult to allocate to individual employees. The tax is usually levied on the employer, who is considered to be providing these fringe benefits. The employer calculates the taxable value as per specified rules and pays tax on that value. This is different from normal income tax on employee salary, which is usually deducted at source from employees.

Step-by-Step Solution:
Step 1: Identify that the term fringe benefits refers to non salary benefits such as free meals, company paid club membership, entertainment expenses, and employee travel for non business purposes. Step 2: Recognise that such benefits represent additional economic gain for employees and therefore attract tax in many systems. Step 3: Understand that Fringe Benefit Tax is structured so that the employer, not the individual employee, is responsible for computing and paying the tax. Step 4: Evaluate the options and select the one that describes FBT as a tax on employers for the value of fringe benefits provided to employees. Step 5: Reject options that misdescribe FBT as a simple tax on basic salary or as a tax restricted to cash bonuses.

Verification / Alternative Check:
When FBT was implemented in India, the law identified specific categories of expenditure where a portion of the spending was treated as deemed fringe benefit and taxed in the hands of the employer. The structure made it easier for tax authorities to collect revenue without having to track each benefit at the individual employee level. This confirms that the tax is conceptually aimed at employers, based on benefits provided to employees.

Why Other Options Are Wrong:
The option describing FBT as a tax collected directly from employees on basic salary confuses FBT with regular income tax. Basic salary is normally subject to income tax, not FBT. Calling it a tax on the purchase of fringe goods such as curtains or decorations misunderstands the nature of fringe benefits, which focus on benefits to employees rather than office assets. The claim that FBT applies only to cash bonuses ignores non cash benefits, which are the central focus of the fringe benefit concept.

Common Pitfalls:
Candidates may mix up Fringe Benefit Tax with standard income tax or payroll taxes. Others may think that every office expense is a fringe benefit, which is not correct; only those that confer personal benefits to employees are considered. It is useful to link FBT with benefits like entertainment, employee travel, gifts, and similar perquisites provided by the employer.

Final Answer:
Fringe Benefit Tax is a tax charged on employers for the value of certain fringe benefits provided to employees, such as entertainment, travel, or perquisites.