Interest-free loan from employer taxable : ITAT

Lubna.Kably@timesgroup.com

Mumbai :  Interest-free loans extended by an employer are taxable in

the hands of an employee as a perquisite, said the Income Tax

Appellate Tribunal (ITAT). However, the valuation of the taxable

benefit or perquisite, which forms part of the salary income of the

employee, cannot be done in an ad-hoc manner and has to be computed as

per the prescribed formula under the Income Tax Act, the tribunal

said.

  In this case, Neha Saraf had obtained an interest-free loan from

her employer, Teej Impex, a private company. During the assessment for

the financial year 2010-11, her argument that no employer-employee

relationship existed fell through because the company had deducted tax

at source, or TDS, on the Rs.24 lakh salary paid to her.

  Thus, the I-T officer assessing her case estimated 15% interest on

the loan and added Rs.43.8 lakh to her income as perquisite value of

the interest-free loan. In the next stage of appeal, the commissioner

of I-T (appeals) held that the I-T officer had rightly treated the

value of interest-free loan as a taxable perquisite in the hands of

the employee. However, he noted that the valuation cannot be done in

an ad-hoc manner.

  According to I-T Act rules, 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 (appeals) also rejected saraf's contention 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. Unhappy with the outcome, Saraf filed an appeal with the ITAT.

However, in its order dated May 16, the ITAT upheld the order of the

commissioner (appeals).

  In the context of interest-free loans from employers, Puneet Gupta,

director, 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. Further, if such taxable perquisite value

is not reported in the I-T returns, the I-T department may levy

penalty ranging from 50% to 200% of the tax payable on the

under-reported income," Gupta adds.

(  The Times of India,  Chennai,  Tuesday, June 12, 2018  )

Courtesy  :  MPS