Section 115WKA: Recovery of Fringe Benefit Tax by Employer from Employee
What did Section 115WKA provide?
Section 115WKA permitted an employer to modify an agreement or scheme for specified securities or sweat equity shares allotted or transferred directly or indirectly on or after 1 April 2007. This permitted the employer to recover from an employee the fringe benefit tax attributable to that employee's benefit, even where the existing agreement or scheme provided otherwise.
The permitted recovery was limited to the employer's FBT liability relating to the value determined under section 115WC(1)(ba). The provision was introduced by the Finance Act, 2007 (Act 22 of 2007), section 41, with effect from 1 April 2007.
Key statutory conditions
- Covered benefit: specified securities, including relevant employee stock options, or sweat equity shares described in section 115WB(1)(d).
- Relevant date: the allotment or transfer by the employer must have been on or after 1 April 2007.
- Contractual override: an employer could vary the applicable agreement or scheme notwithstanding its existing terms.
- Recovery limit: only the FBT actually attributable to the relevant employee benefit as determined under section 115WC(1)(ba) could be recovered under this statutory permission.
Definitions and related provisions
Specified security and sweat equity - Section 115WB(1)(d)
The historical definition of specified security referred to securities under section 2(h) of the Securities Contracts (Regulation) Act, 1956 and included securities offered under an employee stock option plan or scheme. Sweat equity shares were equity shares issued to employees or directors at a discount or for consideration other than cash in return for know-how, intellectual property rights or value additions.
Valuation - Section 115WC(1)(ba)
For covered stock-based benefits, the historical FBT value was the fair market value of the security or shares on the date the option vested, reduced by the amount paid by or recovered from the employee for those securities or shares. Fair market value was determined using the prescribed method.
Deemed employee payment - Section 115WKB
Where the employer paid FBT and subsequently recovered it from an employee, section 115WKB deemed the qualifying recovery to be tax paid by that employee in relation to the benefit. However, it did not entitle the employee to a refund or to offset that amount against other tax liabilities.
Is Section 115WKA applicable today?
No new fringe benefit tax liability arises under Chapter XII-H for assessment years beginning on or after 1 April 2010, by operation of section 115WM. Historical transactions may still require analysis of the law applicable to the relevant assessment year, the employer's actual liability, the agreement and any applicable limitation or procedural rules.
For employee stock options and sweat equity under the later employee-perquisite framework, consult section 17(2)(vi) and the relevant valuation and withholding provisions instead of treating section 115WKA as a current FBT collection rule.
Example of the historical recovery rule
Suppose an employer allotted qualifying shares under a 2007-era scheme and incurred FBT attributable to an employee's taxable share benefit. Even if the scheme did not originally require the employee to reimburse that tax, section 115WKA allowed the employer to vary the scheme and recover the attributable FBT, subject to the statutory limit. This example describes historical law, not a present-day FBT obligation.
Official statutory references
- Income Tax Department - Section 115WKA
- Income Tax Department - Section 115WB
- Income Tax Department - Section 115WC
- Income Tax Department - Section 115WKB
- Income Tax Department - Section 17
Editorial note: The provision is presented for historical statutory reference. Tax consequences for individual transactions depend on the applicable assessment year and facts.