Flexible Benefit Plan in Salary: FBP Declaration, Components, Advantages

Updated on: Dec 5th, 2022 - 9:14:58 AM

9 min read

social iconssocial iconssocial iconssocial icons

What is Flexible Benefit Plan?

A Flexible Benefit Plan (FBP) is a plan included in an employee’s salary which has various salary components like food coupons, books allowance, conveyance allowance etc. However, this plan is flexible for each employee. Employees have complete freedom to design their salary structure within the plan based on the anticipated expenses. Employees can opt-in which FBP components will be a part of their salary and the amount of such components. This plan helps employee to plan their taxes and significantly reduce their tax liability. Organisations around the world offer flexible benefit plans. If your organisation offers a flexible benefit plan in salary, give this article a read. Here you will get a clear insight into FBP declaration, its components, and how they may benefit you. 

What is FBP declaration?

While filing your yearly Income Tax Returns (ITRs), some parts of your salary are exempt from taxation. Declaring them while submitting your returns will enable you to significantly reduce your tax burdens.

Here are some of the FBP components that are exempt from taxation:

  1. Conveyance benefits

There are some daily costs for travelling to work every day. Many employers cover a part of these expenses via a flexible benefit plan. The maximum limit for covering these costs varies across different companies; however, most offer conveyance benefits in the form of:

  • Fuel allowance

Flexible Benefit Plans allow organisations to include fuel costs in the salary structure of their employees. Employees can claim a reimbursement of their petrol or diesel bills by submitting the bills to their employers. Employees can save up to 30% tax on the amount of bills submitted. If the employee exercises this allowance and fails to provide the bills, he will be taxed on the entire allowance amount.

  • Employee’s personal car

A company may provide their employees with cars that can be used for business purposes only. In such cases, the employee must provide proof that the vehicle was actually used for business purposes only, along with fuel bills. However, if the car is used for both office and personal use, the employer covers part of the costs, and the employee covers the rest. Watch this video for a detailed explanation.

  • Company car

Sometimes, employers provide cars to some select employees for official use. Under such circumstances, the individual must provide a certificate claiming that the vehicle was used for business use only. Moreover, that person also has to show the fuel bills for the travel in that car.

  • Chauffeur services/ driver allowance

For individuals working in executive positions, some firms cover the costs of hiring a driver under their Flexible Benefit Plan. Similar to the employee’s personal car benefit, this component will also be mentioned in your salary structure if your company offers it. 

2. Telephone bills

Most organisations include broadband connection bills or postpaid mobile service bills as a flexible benefit. They include it in their employees’ salary structure.

3. Food and beverage expenses

The meals and non-alcoholic drinks that a company offers to its employees during office hours are seen as a benefit by the Income Tax Department. If your employer provides grocery or meal coupons, they are tax-free up to Rs. 50/per meal for two meals daily. If you consider 22 working days/month, then 2 meals a day results in a monthly benefit of Rs. 2,200 (22*100). Therefore, the yearly exemption works to Rs 26,400.

How to save tax on Salary Income?

In fact, employees can save up to Rs. 60,000 in taxes through flexible benefit plan. This benefits both employers and employees as it helps employers in building an employee-first culture and allows employees to save significant taxes.

Salary
Components
Annual MonthlyRemarks
HRA3,00,00025,000It is Partially
Tax exempted
LTA1,50,000Tax-exempt to
the extent bills
submitted
Telecom-
Mobile, Internet
36,0003,000Tax-exempt to
the extent bills
submitted
Fuel Allowance28,8002,400Tax-exempt to
the extent bills
submitted
Children’s
education &
hostel
allowance
9,600800400/month for 2
children. 
Meal/Food 26,4002,200Tax-free till Rs 50 per meal
(22 working days)
Academic
Development
10(14)(i)
2,00,000It is Tax-Free if bills are
submitted
Books/
Magazines/
Journals
12,0001,000Tax-exempt to
the extent bills
submitted
Driver Salary
Allowance
36,0003,000Tax-exempt to
the extent bills
submitted
Uniform
Allowance
12,0001,000
Gift voucher5,000Tax-free up to
Rs 5000

Based on the expenses incurred, you may opt-in for any of the above as a part of your salary and save taxes up t0 30% based on your income slab.

How do you declare FBP in salary?

Each organisation has its own management software, so the steps to follow while declaring FBP will vary. When you intend to declare the FBP in your salary, you need to visit the Employee Self-Service (ESS) portal and declare all the benefits that you received.

What is FBP in salary slip?

Flexible Benefit Plan in salary slip includes the modifications that businesses can do in their employee’s CTC. This adjustment is based on one’s position in the company, Government compliances, and organizational norms. Moreover, companies always apply checks and balances in order to prevent the misuse of such modifications.   

What is the downside of a flexible benefit plan?

Both employers and employees can face the downsides of having an FBP allowance in an organisation.

Disadvantages for employers

These are the disadvantages employers can face if they implement FBP in their firm:

1.Difficulty in implementation

While implementing a Flexible Benefit Plan in one’s business, an employer has to spend a lot of time and money. Moreover, the employees of the firm also have to accept the new changes being implemented. 

Companies must invest substantial time and effort to explain to their employees why these changes are taking place and how they will benefit from them. Any communication gap in this regard may cause a backlash and make all the employer’s efforts to implement an FBP go to waste.

2. Setup expenses

Setting up an FBP in one’s business is a costly affair. When a traditional benefits plan is already there in an organisation, company owners must assess whether implementing a Flexible Benefits Plan will actually benefit their employees. 

Furthermore, it takes a lot of time to administer such changes in an organisation. It may also need the adoption of new technologies to make this plan come into effect. 

Disadvantages for Employees

When it comes to adopting an FBP in an organisation, there are some disadvantages on the employee’s side as well:

1.Lack of portability options

Flexible benefit plans lack portability. So, if you get a specific benefit while working in a particular firm, you will not be able to transfer it while changing jobs. 

2. Possibility of losing money

There are some flex plans that do not allow employees to save the money that they did not spend within a financial year. This means that the person will get a certain amount of salary in that FBP component that he/she cannot use for their benefit. 

What are the advantages of a flexible benefit plan?

Just like the drawbacks, flexible benefit plan advantages are applicable for both employers and their employees. 

Advantages for employers

The advantages of FBP for employers are:

1.Better recruitment prospects

Organisations that offer flexibile benefits to their employees have a better chance of attracting talented individuals to work for them. 

2. Retention of employees

FBPs give a good amount of flexibility to the employees. This might help in boosting their morale and maximise employee retention. 

3. Increase in productivity

As employees get to modify the components of their salary according to their requirements, it will lead to a happier and healthier working environment. Thus, the productivity of the workforce will increase manifold.  

Advantages for employees

The advantages of FBP for employees are:

1.Tax exemptions

Flexible Benefit Plans provide employees with the ability to restructure their CTC in order to reduce their tax burdens. Components of FDP, like travel allowance, food bills, etc., are non-taxable. Thus individuals can separate these expenses from their basic salary on which the government calculates taxes.

2. Improved financial planning

When businesses offer compensation for certain expenses under an FBP, employees can take advantage of these benefits and plan their finances in a better way.   

So, if there is a Flexible Benefit Plan currently active in your workplace, check out all the modifications you can make to your salary structure. Moreover, before you choose the flexible benefits, do weigh out all the options so that you can reap the full benefits.

FAQs

What happens if an employee declares but does not claim the FBP amount?

When an employee declares but does not claim the FBP amount, it comes under Unclaimed FDP. The individual receives it either at the end of the financial year or as a Special Allowance during the termination of employment. 

What is FBP full form?

FBP stands for Flexible Benefit Plan.

Is the FBP allowance taxable?

No, the FBP allowance you receive from your employer is not taxable. However, if you receive an exceptional allowance or wage dues, there will be tax implications. So, you should timely complete all FBP statements relating to expected yearly reimbursements to save on taxes. 

Who are eligible for Flexible Benefit Plans?

Full-time employees with a work schedule of 20 hours or more in a week are eligible to participate in Flexible Benefit Plans.

When can new employees take part in FBP?

New employees can take part in FBP on the first day of the month after their starting date. However, if they join on the first day of the month, they can start participating in the FBP from that day itself. 

CONTENTS
;

Clear offers taxation & financial solutions to individuals, businesses, organizations & chartered accountants in India. Clear serves 1.5+ Million happy customers, 20000+ CAs & tax experts & 10000+ businesses across India.

Efiling Income Tax Returns(ITR) is made easy with Clear platform. Just upload your form 16, claim your deductions and get your acknowledgment number online. You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources. Further you can also file TDS returns, generate Form-16, use our Tax Calculator software, claim HRA, check refund status and generate rent receipts for Income Tax Filing.

CAs, experts and businesses can get GST ready with Clear GST software & certification course. Our GST Software helps CAs, tax experts & business to manage returns & invoices in an easy manner. Our Goods & Services Tax course includes tutorial videos, guides and expert assistance to help you in mastering Goods and Services Tax. Clear can also help you in getting your business registered for Goods & Services Tax Law.

Save taxes with Clear by investing in tax saving mutual funds (ELSS) online. Our experts suggest the best funds and you can get high returns by investing directly or through SIP. Download Black by ClearTax App to file returns from your mobile phone.

Cleartax is a product by Defmacro Software Pvt. Ltd.

Company PolicyTerms of use

ISO

ISO 27001

Data Center

SSL

SSL Certified Site

128-bit encryption