Interest-free loans given to workers by their employer are taxable as a benefit, India’s Income Tax Appellate Tribunal (ITAT) has ruled.
According to the Times of India, the Tribunal stated that taxable values should be calculated as per the prescribed formula under the Income Tax (IT) Act.
The ruling was made in the case of Neha Saraf, who was given an interest-free loan by her employer, Teej Impex. She had tried to argue that no employer-employee relationship existed, but the tribunal ruled that it did because the company had deducted tax at source (TDS) on her pay.
The Tribunal also held that the officer assessing her case had rightly treated the value of the interest-free loan as a taxable perquisite. According to IT Act rules, a perquisite value is based on the rate charged by the State Bank of India on 1 April of the financial year in which the employee received the loan.
Puneet Gupta, director of people advisory services at Ernst and Young, said: "The employer is liable to treat an interest-free loan as a taxable perquisite and TDS is to be deducted from salary. An exemption is available if the loan is provided for medical treatment of specified diseases or where the loan amount is petty and does not exceed Rs 20,000 (US$255)."
He added that employees needed to ensure their employer deducted TDS on their total salary income, which includes the perquisite value of interest-free loans. If TDS was not deducted, not only would the employee have to pay income tax on the perquisite value of the loan, but interest would also be payable for depositing advance tax late.
"Further, if such taxable perquisite value is not reported in the IT returns, the IT department may levy a penalty ranging from 50% to 200% of the tax payable on the under-reported income," Gupta said.
Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.
Interest-free loans given to workers by their employer are taxable as a benefit, India’s Income Tax Appellate Tribunal (ITAT) has ruled.
According to the Times of India, the Tribunal stated that taxable values should be calculated as per the prescribed formula under the Income Tax (IT) Act.
The ruling was made in the case of Neha Saraf, who was given an interest-free loan by her employer, Teej Impex. She had tried to argue that no employer-employee relationship existed, but the tribunal ruled that it did because the company had deducted tax at source (TDS) on her pay.
The Tribunal also held that the officer assessing her case had rightly treated the value of the interest-free loan as a taxable perquisite. According to IT Act rules, a perquisite value is based on the rate charged by the State Bank of India on 1 April of the financial year in which the employee received the loan.
Puneet Gupta, director of people advisory services at Ernst and Young, said: "The employer is liable to treat an interest-free loan as a taxable perquisite and TDS is to be deducted from salary. An exemption is available if the loan is provided for medical treatment of specified diseases or where the loan amount is petty and does not exceed Rs 20,000 (US$255)."
He added that employees needed to ensure their employer deducted TDS on their total salary income, which includes the perquisite value of interest-free loans. If TDS was not deducted, not only would the employee have to pay income tax on the perquisite value of the loan, but interest would also be payable for depositing advance tax late.
"Further, if such taxable perquisite value is not reported in the IT returns, the IT department may levy a penalty ranging from 50% to 200% of the tax payable on the under-reported income," Gupta said.
Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.
