Interest-free loan from employer taxable: ITAT

Interest-free loan from employer taxable: ITAT
Highlights

Income Tax Appellate Tribunal(ITAT) said “Interest-free loans extended by an employer are taxable in the hands of an employee as a perquisite.”

MUMBAI: Income Tax Appellate Tribunal(ITAT) said “Interest-free loans extended by an employer are taxable in the hands of an employee as a perquisite.”

Anyway, the evaluation of the taxable benefit has to calculated by a specific formula under the Income Tax Act, ITAT said.Teej Impex, a private company, gave an interest free loan to their employee Neha Saraf.

During the evaluation for the financial year 2010-11, her argument that no employer-employee relationship existed did not happen because the company had TDS,Tax Deducted at Source,on her salary of Rs 24 lakh.So, the I-T officer evaluating her case calculated 15% interest on the loan and attached Rs 43.8 lakh to her income as a bonus of the interest free loan.

One of the Income Tax Act rules states that a perquisite value is based on the rate charged by SBI on April 1 of the financial year in which the employee received the loan.The commissioner remade the evaluation at a lower bonus of Rs 20.65 lakh.The commissioner also denied Saraf’s disagreement that as interest on the loan given to her had already been disallowed in the hands of the company, it cannot be treated as a perquisite in her hands.Hapless with the result, she filed an appeal with the ITAT.

Puneet Gupta, director of people advisory services at Ernst and Young, says, “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.”

“Employees must ensure that the employer deducts TDS on the total salary income, which includes the perquisite value of interest-free loans. If TDS is not deducted, the employee faces several consequences. Not only does he or she have to pay income tax on the perquisite value of the loan, but interest will also be payable for late deposit of advance tax,” he adds.

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