Free or Concessional Loan to Employees
Introduction
Interest-free or concessional loans provided by employers to employees or their family members are taxable as perquisites under “Salaries.” However, petty loans up to Rs. 20,000 and loans for specified medical treatments are exempt.
Taxability of Loans
- Situations Where Perquisite Arises
- Loans for personal purposes like education, marriage, or medical treatment.
- Loans provided to employees, their family, or dependents.
- Valuation of Perquisite
- Steps to calculate taxable value:
- Determine the outstanding loan balance on the last day of each month.
- Compute interest at the SBI rate applicable on the first day of the financial year for similar loans.
- Deduct any interest recovered by the employer.
- The result is the taxable perquisite value.
- Deemed Dividend
- If a private company gives a loan to an employee holding ≥10% voting power, the loan is treated as deemed dividend.
- Steps to calculate taxable value:
Exemptions from Taxability
- Petty Loans
- Loans up to 20,000 in aggregate are exempt.
- If the total loan exceeds 20,000 at any time, the entire loan is taxable.
- Medical Loans
- Loans for treating diseases specified in Rule 3A (e.g., cancer, AIDS) are exempt.
- If reimbursed by an insurance company, the taxable perquisite is calculated on the reimbursed but unpaid amount.
List of Specified Diseases
Includes ailments like cancer, tuberculosis, heart conditions, fractures, mental disorders, drug addiction, gynaecological or obstetric ailment and severe allergic reactions requiring hospitalization.