Lakesh Kumar

Lakesh KumarTreatment of Medical Facilities AND Interest free Loan or Loan at Concessional rate of Interest

As we know many facilities and perquisites provided by employer to their employees. Medical facilities and Interest free loan or loan at concessional rate is one of them. I always try my best to make understand the users of my articles that I want to convey through articles. In this article I am going to share the treatment of Medical facilities and Interest free loan or loan at concessional rate.

Valuation of Medical Facilities :-

When Medical facilities provided by employer, following facilities shall not be treated as perquisites, so these are tax free.

  1. The Value of any medical treatment provided to an employee or any member of his family in any hospital maintained by the employer.
  2. Any sum paid by employer in the respect of any expenditure incurred by the employee on his medical treatment or any member of his family in any hospital maintained by the Government/Local authorities or any other hospital approved by Govt. for this purpose.

  3. Any sum paid by employer in the respect of any expenditure incurred by the employee on his medical treatment or any member of his family in respect of prescribed disease in any hospital approved by Chief Commissioner .

  4. Medical Insurance obtained by the employer for his employees or reimbursement of insurance premium to the employee who takes such medical insurance on his life or on the life of his family members.

  5. Reimbursement by employer of amounts spent by employee in obtaining medical treatment for himself or any member of his family from any doctor ,not exceeding in the aggregate of Rs.15000/- in a year.

Note:- It is important to note that this expenditure need not be incurred either in the Govt. Hospital or in a hospital approved by the Chief Commissioner.

  1. Any expenditure incurred by the employer on the following:

a)   medical treatment of the employee or any family member of the employee outside India

b)   travel and stay abroad of the employee or any member of the family of such employee for medical treatment

c)   travel and stay abroad of one attendant who accompanies the patient in connection with such treatment.

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Conditions:-

 i.        Expenditure on medical treatment and stay abroad will be exempt only to the extent permitted by the RBI.

 ii.        Traveling expense of the patient and one attendant will be exempt if the gross total income as computed before including the said expenditure does not exceed Rs. 2 Lakh.

Valuation of Perquisite in respect Interest free loan or loan at concessional rate of interest. :-

If a loan is given by an employer to the employee or any household member of the employee, there is an element of perquisite and it is chargeable to tax. Perquisite can calculate on the following basis:-

  1. Find out the maximum outstanding balance as on the last day of the each month.
  2. Find out the rate of interest charged by SBI on the first day of the relevant previous year.
  3. Calculate interest for each month on the outstanding balance calculated in step 1 at the rate calculated in step 2.
  4. Total Interest calculated for the previous year in step 3, deduct interest if any recovered from employee.
  5. Balance amount is taxable perquisite.

In the following cases perquisite in not chargeable to tax:-

a)   Where amount of the original loan does not exceed Rs.20,000/-.

b)  If a loan is given for the medical treatment in respect of specified diseases however exemption not applicable to so much of the loan as he has been reimbursed to the employee under any medical insurance scheme.

Example:- Employer (Lucky) provide interest free loan to employee (Sangeeta) on 17th July 2013 for the specified diseases of Rs. 15 lacs. As per the agreement Sangeeta has to repay loan of Rs. 50000 every 10th of the month. Sangeeta is also covered under a mediclaim insurance cover. Insurance company reimburses her of the hospitalization charges of Rs. 4 lacs on the 16th December 2013.And amount paid by insurance company retained by Sangeeta. Calculate perquisite in the hand of Sangeeta.

Solution:- Perquisite in respect of interest free loan provided for the medical treatment in respect of specified disease is not taxable. However it will not include that amount as has been reimbursed to the Sangeeta under Medical Insurance Scheme. Therefore, out of loan of Rs. 15 lacs granted to Sangeeta , 4 lacs reimbursed by insurance company on 16th December 2013, will be taken into account for computing taxable value of perquisite. I am assuming that SBI lending rate on April 1,2013 is 16%.

Month Maximum Monthly out-Standing balance on lastDay of month.                  Interest
December 400000 400000×16%x1/12 = 5333 apx.
January 350000 350000×16%x1/12 = 4667 apx.
February 300000 300000×16%x1/12 = 4000
March 250000 250000×16%x1/12 = 3333 apx.
                     Total 17333/-

Taxable Value of the perquisite in the hand of Sangeeta for the Finance Year 2013-14 is Rs.17333/-.

Notes:-

  • Family Means –

  i.        Spouse and children of the employee , Whether dependent or not.

 ii.        Parents, brothers and Sisters of the employee who are mainly dependent on the employee.

  • Health insurance premium paid by employer on the health of the employee is fully exempt.
  • If treatment is done outside India, then it must be with the permission of RBI.( Author is a CA Student and can be reached at E-Mail-: lakeshkr@gmail.com)

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2 responses to “Taxation of Medical Facilities & Interest free or Concessional rate of Interest Loan”

  1. DATTATRAY REDEKAR says:

    Hi,
    Am working with Mnc company and the my employer has not deducted the perquisite tax for last three year in the name of processing error. Now started recovery in heavy deductions in 15 installments unilaterally. Where should we approach for the justice in the matter. Please guide urgently.

  2. NIRANJAN says:

    I HAVE TAKEN HOME LOAN FROM BANK @9.5%.THERE IS ONE OPTION WHERE MY COMPANY WILL REIMBURSED OR TRANSFER 5% OF TOTAL INTEREST AMOUNT TO MY ACCOUNT.WILL THAT BE TAXABLE ? AND IT WILL AN GOOD OPTION TO CHOOSE THAT FACILTY FROM COMPANY CONSIDERING TAX PART

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