perquisite valuation of concessional loan facility for employees (especially bank employees) under Income-tax Rules, 1962.

perquisite valuation of concessional loan facility for employees (especially bank employees) under Income-tax Rules, 1962.

📌 Relevant Provision

  • Section 17(2)(viii) of the Income-tax Act, 1961 → “Perquisites” include any concession in the matter of interest on loans provided by employer.

  • Rule 3(7)(i) of the Income-tax Rules, 1962 → Prescribes method for valuation.

📊 Valuation Method – Interest on Loan at Concessional Rate

Perquisite Value = (SBI lending rate – Actual rate charged by employer) × Outstanding Loan Balance

  • SBI rate: The rate of interest charged by the State Bank of India (SBI) as on the 1st day of the relevant financial year for the same type of loan (e.g., housing loan, car loan, personal loan).

  • Outstanding balance: The maximum monthly balance method is used (check balance on last day of each month).

  • Actual rate charged: The concessional rate at which employer (e.g., bank) has given the loan.

⚖️ Exemptions / Reliefs

  • Small Loans: If the aggregate loan amount does not exceed ₹20,000, no perquisite valuation applies.

  • Medical Loans: Loans for medical treatment of specified diseases are exempt (to the extent not reimbursed by insurance/others).

🏦 Example (Bank Employee)

  • Housing Loan: ₹15,00,000 outstanding.

  • SBI Rate (1st April): 9% p.a.

  • Concessional Rate given to employee: 4% p.a.

  • Differential Rate = 5%.

Perquisite Value (Annual) = ₹15,00,000 × 5% = ₹75,000
(Taxed as salary income in employee’s hands.)

========================================================================

When bank employees (private or public sector) get staff loans at concessional / privileged interest rates, the difference between the market interest rate and the concessional rate is treated as a taxable perquisite under the Income-tax Act.

🔹 Tax Treatment of Concessional Staff Loans

Relevant Section

  • Section 17(2)(viii) of the Income-tax Act, 1961

  • Rule 3(7)(i) of the Income-tax Rules, 1962 lays down the valuation method.

🔹 Method of Perquisite Valuation

  1. Identify Loan Type – e.g., Vehicle Loan (VLS), Staff Domestic Loan (SDL), Personal Loan (PLS), Housing Loan, etc.

  2. Find Benchmark Interest Rate –

    • Use the SBI lending rate (as on the 1st day of the relevant FY) for similar loans.

    • Example: If SBI car loan rate on 1st April is 9%, and employee gets VLS at 4%, then 5% differential is perquisite.

  3. Apply on Outstanding Loan Balance –

    • Compute perquisite monthly on the maximum outstanding balance of loan (month-end balance).

  4. Exemption Cases –

    • No perquisite if the aggregate loan amount ≤ ₹20,000.

    • Medical loans for specified diseases (if certified) are exempt to the extent not reimbursed by insurance/employer.

🔹 Example (Illustration for Payroll)

  • Employee avails VLS (Vehicle Loan Staff) = ₹8,00,000

  • Outstanding balance (average for the year) = ₹7,00,000

  • SBI rate = 9% p.a. | Staff concessional rate = 4% p.a.

  • Differential = 5% p.a.

  • Perquisite Value = 7,00,000 × 5% = ₹35,000 (added to taxable salary).

✅ Summary:

  • VLS, SDL, PLS staff loans at concessional rates create a perquisite on interest differential.

  • Valued using SBI benchmark rate vs staff rate, applied to outstanding balance.

  • Taxable perquisite reported in Form 16, Form 12BA.

Comments

Post a Comment

Popular posts from this blog

Capital Gains Tax on Sale

  1. Capital Gains Tax on Sale of House Property vs. Land Criteria House Property (Building & Land) Vacant Land (Plot of Land) Holding Period for LTCG More than 24 months (Long-Term) More than 24 months (Long-Term) Holding Period for STCG ≤ 24 months (Short-Term) ≤ 24 months (Short-Term) STCG Tax Rate As per Slab Rate As per Slab Rate LTCG Tax Rate 20% with Indexation 20% with Indexation Indexation Benefit ✅ Available ✅ Available Exemptions Available Section 54 (Reinvestment in house) & Section 54EC (Bonds) Only Section 54F (Reinvestment in house) & Section 54EC (Bonds)   🔹 Key Difference in Exemptions House Property: Eligible for Section 54 , allowing reinvestment in another re...
Read more

What Is Incriminating Material in Income Tax Law?

  What Is Incriminating Material in Income Tax Law? Incriminating material refers to any document, record, statement, digital evidence, or seized item during a search or survey that directly indicates undisclosed income, transactions, or assets of the taxpayer, and can justify an addition in assessment or reassessment. 📚 Judicially Recognized Definition “Incriminating material” is any evidence unearthed during a search which: Relates to a specific assessment year , and Reveals income not disclosed in the original return or books of account 📂 Examples of Incriminating Material Type Examples 💵 Cash / Jewellery Unexplained cash or jewellery without proper source 📝 Documents Unaccounted invoices, promissory notes, loan ledgers 🖥️ Digital evidence Files/emails showing black money, hawala, or bogus transactions 📒 Books of account Parallel books of accounts 📄 Agreements Benami transactions, property undervaluation 💼 Diaries / slips Unrecorded business transac...
Read more

EEE Savings Scheme typically refers to tax-saving investment options that offer exemptions at three stages

Image
  In India, the EEE Savings Scheme typically refers to tax-saving investment options that offer exemptions at three stages: 1. Exemption at Investment Stage (Section 80C): Contributions to eligible schemes are deductible from taxable income. 2. Exemption from Interest or Dividend (Section 10): Interest or dividend earned on these investments is exempt from tax. 3. Exemption at Maturity or Withdrawal (Section 10): Maturity proceeds or withdrawals from these schemes are tax-free. Some popular EEE Savings Schemes in India: 1. Public Provident Fund (PPF): A long-term savings scheme with a lock-in period of 15 years. 2. National Savings Certificate (NSC): A fixed-income investment with a lock-in period of 5 or 10 years. 3. Life Insurance Corporation (LIC) Policies: Certain LIC policies, such as the LIC Jeevan Lakshya Plan, offer tax benefits. 4. Equity-Linked Savings Scheme (ELSS): A mutual fund scheme with a lock-in period of 3 years. 5. Unit-Linked Insurance Plan (ULIP): A life insura...
Read more