How tax is calculated on interest free loan provided by my company?
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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. TheRead more
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):
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:
🧮 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: