How is tax calculated on interest-free loans provided by my company (employer)?

If your company grants you an interest-free or concessional loan, it is treated as a taxable perquisite under Salary if the total loan exceeds ₹20,000, except in cases like medical treatment for specified illnesses. The tax is computed based on SBI rates and added to your gross salary.

✅ Relevant Legal Provisions:

• Section 17(2)(viii) of the Income Tax Act, 1961

• Rule 3(7)(i) of the Income Tax Rules, 1962

As per Section 17(2)(viii):

“Perquisite” includes the value of any other benefit or amenity provided free of cost or at concessional rate by the employer which is prescribed, having regard to the nature and cost thereof to the employer and the financial position of the employee.

Explanation: The provision includes concessional or interest-free loans as perquisites taxable under the head Salary.

🧾 Rule 3(7)(i) – How to Compute Taxable Value of Interest-Free Loan:

The value of the perquisite is calculated as the interest calculated at the rate charged by the State Bank of India (SBI) as on the 1st day of the relevant previous year for loans of similar type, minus the interest actually recovered from the employee.

🧮 How to Calculate Taxable Perquisite:

Perquisite Value=(Loan Amount×SBI Rate×No. of months)−Interest, if any, recovered from employee

• SBI Rate: As per prevailing SBI lending rate on 1st April of the financial year

• Loan Value: Opening balance at the beginning of each month

• Exemption: If aggregate loan amount is ≤ ₹20,000, no perquisite value is taxable

📘 Illustration:

• Loan Amount: ₹5,00,000 (interest-free)

• Date of loan: 1st April 2024

• SBI rate on 1st April 2024: 9% p.a.

• Interest recovered from employee: ₹0

Taxable Perquisite=₹5,00,000×9%=₹45,000

₹45,000 will be treated as salary income and taxed at slab rate applicable to the employee.

📌 Special Cases: