INDIA BUSINESS WORLD - MAY 2006
THE MONTH THAT WAS...

FRINGE BENEFIT TACK

 AHOST of companies in the software, telecom, banking, FMCG and insurance sectors have decided to restart contributions to employees' superannuation fund from this fiscal. MNC subsidiaries are also proactively looking at offering this benefit.

The move follows the Budget decision to exempt employer's contribution of up to Rs 1 lakh per employee to an approved superannuation fund from fringe benefit tax (FBT). Many companies had suspended contributions to employees' superannuation fund in FY06 to escape FBT. Infosys, for instance, switched to cash compensation in lieu of superannuation fund contribution. This fiscal, Infosys will contribute up to Rs 1 lakh to the superannuation fund.

Those who are entitled to amounts exceeding Rs 1 lakh will be paid the balance as an allowance, said Infosys CFO V Balakrishnan. “The exemption from FBT on contributions up to Rs 1 lakh by the employer opens a window of opportunity for companies to redesign salary structures,” said Bajaj Allianz General Insurance CFO S Sreenivasan.

A few old economy companies may even consider extending this perk to a larger segment of their employees.

 “Post FBT, companies offered esops, which are tax neutral, to attract talent. As all employees may not be eligible for esops, these companies could also look at contributions to superannuation funds,” said Nishith Desai and Associates' senior associate and human resources law practice head Daksha Baxi.

But, Ernst & Young tax partner Amitabh Singh has a different take. While some companies will restart contributions, there could be others which will wait till there is clarity on tax treatment of withdrawals from the fund, he said.