Perquisite on interest free loan given to employees

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

29 January 2015 An Indian Company has given loan to its employees which is recovered from the salary on a monthly basis spread over 20 months. No interest is charged to the employees. In this case perquisite valuation is to be done. In our case the loan is granted on say April 21, 2014. The recovery will start from June 2014. Whether the Company is required to calculated perquisite for the full month of April 2014 or proportionately for the number of days in April 2014 for which he is given the loan or the perquisite needs to be calculated from May 2014?

CA NAVEEN SINGLA

CA NAVEEN SINGLA (Expert)
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29 January 2015 I would like to share that you may give Interest Free Loans to Employees upto Rs. 20000/-. Above Rs. 20000/- Interest on such loan would be the part of Salary as perquisite.

As per calculation you must start from 21st April. Further as Recovery would be started from June,14. O/s Amount would remain same from 21st Apr to June, 14. You must charge Interest at the prescribed rate for 2 Months and 10 days on the loan given to employee. After than on reducing O/s balance from July onwards.

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Querist : Anonymous

Querist : Anonymous (Querist)

29 January 2015 Sir but in the valuation rules there is nowhere mention of proportionate calculation. Also I have gone through various examples on this subject but in all the cases it was assumed that the loan was taken on the 1st day of the month.

My main concern is that in case of TDS, a month means Calendar month. So keeping this in mind whether we should calculate interest from 21st or for the entire month?

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CA NAVEEN SINGLA

CA NAVEEN SINGLA (Expert)
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30 January 2015 You are right it is not given under Income Tax Act but it is understood as all of us has learned during our Accountancy and mathmatics how to calculate Interest.
There is no need to explain it as all of us are pretty well aware about Int. cal. concept.

Under Most of the Laws Interest rate is mentioned but its method of calculation is not mentioned.

Hence it would be calculated Proportionately otherwise every Co. would give advances to employees in the middle of a month and charge interest for full month.

Querist : Anonymous

Querist : Anonymous (Querist)

30 January 2015 Dear Mr. Singla,

Even I am from the same profession. People may have difference of opinion but I am not teaching / "explaining" anyone any Interest calculation concept. The query asked by me is a genuine query. I appreciate and thank you for replying to my query as an Expert but the last reply of yours is not in good taste.

I thank you for replying to my query.

CA NAVEEN SINGLA

CA NAVEEN SINGLA (Expert)
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30 January 2015 Sir,

I appreciate your appreciation but You want to know about from where the Perquisite would start. Definitely it would be started from 21st April not from May. Only the Interest concept itself explain it Thats why I have talked about Method of Interest.

But I am not able to understand why such query has raised in your mind.

Is there any practical difficulty if we are starting from 21st April.

Plz Reply because sharing of knowledge is only a keep to disseminate the Knowledge in this world.

Querist : Anonymous

Querist : Anonymous (Querist)

02 February 2015 Dear Mr. Singla

There is no difficulty as such.

It is raised only because in the rule the wording are "monthly outstanding balance". For the purpose of TDS month is a calendar month irrespective of the day on which it is accounted. Similarly in Section 234C, even if there is a delay of a day we charge interest for 3 months (1 month for last quarter).

I agree with your previous opinion. Thanks once again.