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

What is Flexible Benefit Plan (FBP)?

A Flexible Benefit Plan (FBP) lets you design your own salary package with components like food coupons, travel allowances, and more! 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 the 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?

Along with your income tax savings declaration and proof submission, you are also required to provide the details of expenditure made towards the FBP you have opted for say books allowance, you need to provide the invoice for book purchase. To that extent of declaration and proof submission, your taxable salary is reduced.

This can not be included in your Income Tax Returns (ITRs), this has to be routed via your employer only. Choosing the FBP components will enable you to significantly reduce your tax burdens.

• Choose your perks: Select the FBP components you need and adjust the amounts to fit your budget.
• Reduce your tax burden: Many FBP components are tax-exempt, lowering your overall tax liability.
• Boost your well-being: Tailor your benefits to your lifestyle, whether it's fitness memberships, childcare assistance, or educational allowances.

FBP Components

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.

4. Professional development

Employers provide professional pursuit allowance to their employees to encourage the development of knowledge, skills, and qualifications for professional development. As it helps develop your professional skills and qualifications, you can also address it as a professional development allowance. 

With this financial assistance, employees can attend seminars, workshops, and training programs to boost their professional skills while continuing the job. Besides contributing to the employee’s career growth, this allowance also ensures a better, skilled, and competent workforce for the organisation. There is no limit prescribed under the Act. Hence, any allowance granted for encouraging the academic, research and training pursuits in educational and research institutions is exempt.

How to get the Benefit of FBP?

Flexible benefits coverage is often based on reimbursement. In simple words, employees need to pay for the programs or the services on their own, then submit the receipts to your employer to claim the value of such services as tax-free reimbursement.

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.

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.

Conclusion

Summarising, the Flexible benefits plan provides the employee with the advantage of customizing the benefits that they can claim according to their needs and preferences. For a business to evolve, it should consider these kinds of benefits to have a motivated workforce, which forms the pillar for a successful business.