Monday, February 25, 2013

HOW TO CALCULATE INTEREST FREE /CONCESSIONAL LOAN PERQUISITES VALUATION


on Monday, February 25, 2013

Generally all the employers are providing loans to their employees. These loans are provided either at interest free or for concessional rate than the market rate.But do you know that difference between market rate (prescribed by SBI) and rate provided by the employer is a Taxable perquisites in the hands of the employee. Most of us have ignored such rule.But as per Income tax rules these concessional rate loan are taxable. In this post we will provide you all details about the Taxability of such loans.
  1. Whether loan provided to family members are covered ?
  2. Which types of loans are covered?
  3. Which type of loans are not covered ?
  4. What is the Market rate applicable in such cases.
  5. How to calculate the valuation of perquisite in interest free /concessional interest loan 
  6. Calculator 
  7. extract of Relevant provision of the rules

1.Employee covered Under Interest Free/Concessional Loan Perks

If Interest free or concessional Loan is given to employee (or to any member of his household ) is chargeable to tax as a perquisite to the employee.All employees are Covered under this scheme whether Govt /semi Govt/private ,specified /Non specified .

Meaning of Member of House Hold“member of household” shall include—

(a) spouse(s),

(b) children and their spouses,

(c) parents, and

(d) servants and dependents;

so not only the loans directly given to employee is covered under perquisite but loan given to family member and servant is also covered .


2 .Type of Loan covered


All type of loans are covered under this scheme except given under the heading Loans not covered .To clear the issue the following type of loans are covered under this rule (list is not exhaustive)

  1. House Loan
  2. Car Loan for New Car
  3. Two wheeler Loan 
  4. Education loan
  5. Loan to subscribe Esop
  6. personal loan 
  7. Computer Loan
  8. Marriage Loan /personal loan


3 .Loans Not covered under perquisites 

  1. where the original Loan(s) amount does not exceed in aggregate Rs 20000/-.This rule exempted only original amount up to 20000 but if loan if original loan is more than 20000 but present loan outstanding is less than 20000 then there is no exemption available and perquisite remains taxable.
  2. if the loans made available for medical treatment (for disease specified ) then there will no perks value ,However the exemption so provided shall not apply to so much of the loan as has been reimbursed to the employee under any medical insurance scheme.
4.The valuation will be done the basis of interest charged by State Bank of India on first day of relevant previous year .So for the Financial year 2012-13 the rate of SBI as on 01/04/2012 will be applicable

5.How To Value Interest free /concessional rate Loan provided to employee/house hold members.

 If Loan to employee or his household is provided at a rate less than SBI rate on first day of the previous year then the difference of interest will be charged as perquisite in hands of employee.So if the Interest rate on which loan is provided is more than Rate charged by SBI on relevant date ,then valuation of the perquisite will be nil.Process to calculate the perks value is Given below.
  1. Find Out the Maximum outstanding monthly balance For each loan on the last day of each month.
  2. Find Out the rate of interest Charged by the SBI on that type of loan on the first day of relevant previous year (for FY 2012-13 check rate as applicable on Loan from SBI on 01.04.2012)
  3. Calculate interest on amounts given in (1)for the full financial year above @ rate of SBI as per (2) above and deduct interest recovered from the employee.
  4. The balance will be taxable as perquisites in hand of employee.

Interest Rates of the State bank of India  as applicable for financial year 2012-13 as on 01.04.2012 is available in the link 

Relevant provision as per rule 3A as amended on 18/12/2009(latest as applicable for fy 2012-13)

(i) The value of the benefit to the assessee resulting from the provision of interest-free or concessional loan for any purpose made available to the employee or any member of his household during the relevant previous year by the employer or any person on his behalf shall be determined as the sum equal to the interest computed at the rate charged per annum by the State Bank of India, constituted under the State Bank of India Act, 1955 (23 of 1955), as on the 1st day of the relevant previous year in respect of loans for the same purpose advanced by it on the maximum outstanding monthly balance as reduced by the interest, if any, actually paid by him or any such member of his household:

Provided that no value would be charged if such loans are made available for medical treatment in respect of diseases specified in rule 3A of these Rules or where the amount of loans are petty not exceeding in the aggregate twenty thousand rupees:

Provided further that where the benefit relates to the loans made available for medical treatment referred to above, the exemption so provided shall not apply to so much of the loan as has been reimbursed to the employee under any medical insurance scheme.


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