MUMBAI: Income tax payers had something to cheer about from the budget with the abolishment of the 10 percent surcharge. Corporate India is also happy that the dreaded fringe benefit tax or FBT has been done away with. But the FBT ghost will continue to haunt employees of companies, as they might actually end up paying more taxes.

If the abolition of the fringe benefit tax or FBT made you happy there could be some disappointed. The Finance Ministers budget announcement to do away with FBT but restore taxes on perquisites . This means  most of the reimbursements like drivers salary, petrol and mobile bills  will now be taxed. Like it used to happen in the pre-FBT era, using travel facilities may need a clarification whether it is for company use or personal use and then different formulas for calculating tax would apply.

Nikhil Bhatia, ED, PwC, said, "Effective tax rate of FBT ranged from anywhere from 1.67% to 34%. Now these rates will come down but it wont come down in the same proportion because the formula applicable or the prescribed methodology for calculating benefits in the hands of the employees is different. Separate rules apply. Those rules are in Rule 3 where there is a concessional base of taxation or there is a base of taxation to determine how much of the benefits of lets say a car is to be taxed in the hands of the employees for personal use. So there are different formulas available for that and those again will come back into play for employee taxation."

Employee Stock Options, during the bull run of the equity markets, were part of most offer letters or salary increments. A nearly forgotten term, employee stock options or ESOPs will now be taxed as perquisites. ESOPs will be taxed in two ways. First you pay tax on the Fair Market Value of the shares on the date of exercise of the options less the exercise price. Second will be the capital gains tax on the profit made through the sale of ESOPs.That is if you sell within a year of shares vesting in your account

Mukarram Bhagat, ED, ASK Investment Holdings, said, "What this new system has done, from what I understand so far, is actually not a very big positive because even though FBT has been removed this whole system of working this out that upon exercise of the options into shares and not upon sale of shares tax will be levied that perverse principle remains. Only thing instead of coming under FBT they will come under perquisites. So I think taxing the gain on ESOPs is not an issue at all. If there is a gain people should pay tax but important thing is that gain should be realized."

Employees are mostly unclear so far on how they would be impacted. Corportes say they may have to  restructure salaries,else employees could end up paying more taxes resulting in lesser money in their pockets at the end of the month.