Interest-free loan from employer taxable: ITAT
The Income Tax Appellate Tribunal has said that valuation of taxable benefit or perquisite has to be computed as per prescribed formula under the I-T Act.
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 salary of Rs 24 lakh 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 a 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.
Co must include loan amount while computing TDS
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) reworked the valuation and arrived at a lower perquisite value of Rs 20.65 lakh. 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 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. 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.