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

A Flexible Benefit Plan allows you to design your own salary package, letting you choose the required allowances and perquisites. Usually, companies provide food coupons, conveyance allowance, professional development program, health insurance, etc., We can also structure the options under the FBP in a way that helps minimize tax liability. The following article explains in detail, meaning, tax saving techniques, benefits and drawbacks of FBP.   

What is Flexible Benefit Plan (FBP)?

• 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. 
• This plan helps the employee to plan their taxes and significantly reduce their tax liability. 
• Organizations around the world offer flexible benefit plans.  

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 conveyance allowance, you need to provide the bills for the same. 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:

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

• 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, it is treated as a perquisite, taxable under specified circumstances.

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

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

Telephone Bills

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

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.

Professional Development

• Employers provide professional pursuit allowance to their employees to encourage the development of knowledge, skills, and qualifications for professional development. 
• With this financial assistance, employees can attend seminars, workshops, and training programs to boost their professional skills while continuing the job. 
• There is no limit prescribed under the Act for exemption of this allowance.

Note: There are various allowances that are not tax free under the new regime. Therefore, choice of regime by the taxpayers should always be kept in mind while choosing components in FBP 

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 organization 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 are the Advantages of a Flexible Benefit Plan?

 The advantages of FBP for employees are:

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.

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.

What are the Set Backs of a Flexible Benefit Plan?

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

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. 

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. 

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.