Date:03/07/2005 URL: http://www.thehindubusinessline.com/2005/07/03/stories/2005070301290500.htm

Back Superannuation: Insurers seek changes in FBT

Our Bureau

Mumbai , July 2

THE insurance industry will not let go of the much-debated issue of fringe benefit tax (FBT) without a fight.

Spearheaded by the Life Insurance Council and the Life Insurance Corporation of India (LIC), the movement to have FBT on group superannuation withdrawn or at best amended is gaining strength. Currently, FBT is applicable to employers' contributions for superannuation. Mr S.V. Mony, Secretary General, Life Insurance Council, said that on behalf of the insurance industry, the council has submitted its recommendations to the Finance Ministry. The recommendation is that FBT be applicable to contributions that are beyond the permissible15 per cent.

"Concessional travel allowance and superannuation are the only two cases where there is 100 per cent fringe benefit tax. Superannuation is a benefit that can by no means be `fringe'.One can look at a middle path by perhaps exempting FBT up to a limit of 15 per cent of the employees' salary in the current year only," said Mr Mony.

This, the council believes, would not only retain the EET (Exempt- Exempt-Tax) method of taxation for superannuation schemes but also ensure that companies do not take undue advantage of the tax benefits provided for these schemes.

EET implies that there will be a tax only at withdrawal of the fund. TET (Tax-Exempt-Tax) implies that there will be tax at the point of investment and withdrawal — as in the case of superannuation.

LIC, which holds a corpus of Rs 9,018 crore under superannuation schemes alone, has written to the Government to do a rethink on FBT. According to a senior official at LIC, the PSU has given its clients various options. "We have asked them to suspend contributions to the schemes, until the issue is resolved. The other option is for them to reduce their contribution," he said.

The official said that under FBT, a company would have to pay Rs 33.6 as tax on Rs 100. If they reduce the contribution to Rs 70, then their expenditure of Rs 100 will remain the same.

The contention of the insurance industry is that while on one hand the Government is looking toward setting up a national pension system, on the other, it is discouraging employee pension schemes.