Dear Employee , enjoy the perk and avoid the Tax-net also
(Whether Interest subsidy received by an employee from his employer is a taxable perquisite in his hands under the Income-Tax Act 1961)
Now-a -days most of the employers, especially the companies have been providing loans to their employees for the purpose of purchase/construction of a houses or purchase of vehicles. Such loans are either interest-free or at concessional rate of interest. These loans are being advanced in order to make the salary package more attractive as well as by way of a welfare measure. Of late, some companies have been framing different kinds of schemes for the above purpose. Under some of such schemes the employee may himself take a loan from banks or other financial institutions,. e.g. H.D.F.C. , L.I.C.- F.C., G.R.U.H – Finance etc; the employee is required to bear only a small percentage of interest between 4% to 6% and the balance of interest on such loans is reimbursed to the employee by the employer company. Such reimbursement has come to be popularly known as ‘Interest -subsidy’.
It is thus, clear that an employer may assist his employee in the purchase / construction of a house or the purchase of a vehicle, by providing:
(i) interest free loan, or
(ii) loan at concessional rate of interest, or
(iii) interest subsidy in respect of the interest payable on loan
In such cases the employee would naturally be interested to know about the tax implications in respect of such loan transactions.
Any loan given free of interest or concessional interest shall be a taxable perquisite and calculated as follows:
Step 1 : Calculate maximum outstanding monthly balance at the end of every month
Step 2 : Find out rate of interest charged by SBI as on 1st April of previous year in case of similar loan
Step 3 : Calculate interest on amount as per Step 1 @ Rate as per Step 2 for each month
Step 4 : Total of interest for the year as per Step 3
Step 5 : Less : Interest charged from employee
Step 6 : Balance amount is the value of perquisite in respect of interest free/concessional loan
Mr. S. K. TYAGI, M.Sc., LL.B., Advocate, Ex-Indian Revenue Service and Income-Tax Advisor
Office Address– Flat No.2, (First Floor), Gurudatta Avenue, Popular Heights Road, Koregaon Park, PUNE – 411 001, Phone Office: 0212-633012, Residence Phone -0212-682032, 0212-682444
Disclaimer: The contents of this article are for information purposes only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.
(Republished with Amendments by Team Taxguru)