Nasscom on Wednesday said the government should consider making the fringe benefit tax applicable only on those expenses which have a direct connection with the employees.

In its pre-Budget memorandum, Nasscom said the law should be amended to keep expenses like sales and promotion spend, meals-related expenses and medical insurance out of the ambit of FBT.

The law should also treat the information technology and the business process outsourcing industry at par for FBT. "The BPO industry should be treated at par with the IT Industry as the same is in harmony with the other provisions of the Income Tax Act," Nasscom said in a press release.

The need for a separate return and assessment proceedings should also be removed, the release said.

Nasscom had raised the issue of the arm length pricing, whereby the non-resident parent company was taxed for its captive BPO operations in India.

The association had suggested that while the taxation should be only for the work done in India, the parent company should not be asked to open its accounts in India.

"The non-resident shall not be liable to tax in India for such outsourced work and consequently should not be required to file any return of income in India," the statement said.

Under the present tax law, the captive units operating in India are taxed differently than third party BPO players.

The differential taxation should be addressed as the industry is likely to lose $1 billion in potential revenue. "We lose up to $1 billion in revenue and sizeable employment generation if the issue of arm length pricing is not addressed," Nasscom said.