Interest free or concessional loans [Rule 3(7)(i)]: It is common practice, particularly in financial institutions, to provide interest free or concessional loans to employees or any member of his household. The value of perquisite arising from such loans would be the excess of interest payable at prescribed interest rate over interest, if any, actually paid by the employee or any member of his household.

The prescribed interest rate would now be the rate charged per annum by the State Bank of India as on the 1st day of the relevant financial year in respect of loans of same type and for the same purpose advanced by it to the general public.

Perquisite value would be calculated on the basis of the maximum outstanding monthly balance method. For valuing perquisites under this rule, any other method of calculation and adjustment otherwise adopted by the employer shall not be relevant. However, small loans up to Rs. 20,000/- in the aggregate are exempt.

Loans for medical treatment of diseases specified in Rule 3A are also exempt, provided the amount of loan for medical reimbursement is not reimbursed under any medical insurance scheme. Where any medical insurance reimbursement is received, the perquisite value at the prescribed rate shall be charged from the date of reimbursement on the amount reimbursed, but not repaid against the outstanding loan taken specifically for this purpose.

Calculation of Value of Interest Free Loan

Any loan given free of interest or concessional interest shall be a taxable perquisite and calculated as follows:

  • Interest calculated at the rate charged by State Bank of India as on 1st day of previous year on loan for the same purpose. This is to be calculated on maximum outstanding monthly balance.
  • Less actual interest paid by employee.

Exceptions

  • Loan upto Rs. 20,000.
  • Loan for medical purposes for prescribed diseases

Steps to calculate value of Perquisite

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

State Bank of India: Interest Rates on 1st April, 2020
For the purpose of computing perquisite valuation

Interest rates as on 1st APRIL, 2020 on various loans in Personal Segment advances are as under

External Bench Mark lending Rate (EBR):7.05%

 A. HOME LOANS (TERM LOAN):

Revised Int I. TERM LOANS UPTO RS 30 LACS (EBR: 7.05%)
Salaried Borrowers (%) : Non-Salaried Borrowers (%) :
Women LTV = 80 7.15% (10 bps above EBR of 7.05%) 7.30% (25 bps above EBR of 7.05%)
LTV > 80
and = 90
7.25% (20 bps above EBR of 7.05%) 7.40% (35 bps above EBR of 7.05%)
Other LTV = 80 7.20% (15 bps above EBR of 7.05%) 7.35% (30 bps above EBR of 7.05%
LTV > 80
and = 90
7.30% (25 bps above EBR of 7.05%) 7.45% (40 bps above EBR of 7.05%
II. TERM LOANS ABOVE RS 30 LACS AND UPTO RS 75 LACS: (EBR: 7.05%)
Salaried Borrowers (%) : Non-Salaried Borrowers (%) :
 

Women

7.40% (35 bps above EBR of 7.05%) 7.55% (50 bps above EBR of 7.05%
 

Other

7.45% (40 bps above EBR of 7.05%) 7.60% (55 bps above EBR of 7.05%)
III. TERM LOANS ABOVE RS 75.00 LACS – FLOATING RATE: (EBD: 7.05%)
Salaried Borrowers (%) : Non-Salaried Borrowers (%) :
Women 7.50% (45 bps above EBR of 7.05%) 7.65% (60 bps above EBR of 7.05%)
Other 7.55 (50 bps above EBR of 7.05%) 7.70% (65 bps above EBR of 7.05%)
CRE Home Loan
A premium of 50 bps over and above the interest rate applicable to Home Loan will be charged.

 B. SBI STUDENT LOAN SCHEME

Loan Limit 1 year MCLR Spread Effective Interest Rate Reset Period
Upto Rs 7.5 Lacs 8.55% 2.00% 10.55% 1 year
Concession 0.50% concession in interest for girl students
Above Rs 7.5 Lacs 8.55% 2.25% 10.80% 1 year
Concession 0.50% concession in interest for girl students
0.50% concession for students availing of SBI Rinn Raksha or any other existing policy assigned in favour of our Bank

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.

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