The business process outsourcing industry is likely to get the benefit of paying fringe benefit tax only on 5 per cent of its total conveyance expenditure.

This is expected to be part of the Budget announcements of Finance Minister P Chidambaram who has promised to look into the FBT issue.

Run-up to the Budget 2006

The Budget is also likely to exclude brand endorsements and distribution of free samples from the purview of the FBT, as these activities cannot in any way be considered benefits for employees.

The advantage of paying the FBT on 5 per cent of conveyance expenses has already been extended to software, pharmaceuticals and construction companies. The finance minister was likely to make it applicable to BPO companies in the 2006-07 Budget, sources said.

A 30 per cent FBT was introduced in the 2005-06 Budget as a means of tightening the regime of tax on perquisites enjoyed by employees. It tries to cover benefits that are usually enjoyed collectively by employees and cannot be attributed to individual employees for tax purposes.

Software, pharmaceuticals and construction companies have been provided this facility of paying the FBT on only 5 per cent of their total conveyance expenditure, as their nature of business involves a lot of travelling.

The BPO industry has pushed its case hard for being treated on a par with software and pharmaceuticals industries. In the case of other companies, the FBT is levied on actual spends.