Valuation of interest free loans

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CMA Swati Agarwal (Querist)
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13 February 2014 Kindly guide me with an example as to how to calculate interest free loans provided by the employer to the employee.
What should be the rate of interest charged for the same, and how is it treated in calculating the TDS of employee for the month of March'14

Thanks
Swati

Nikhil Kaushik

Nikhil Kaushik (Expert)
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13 February 2014 It is benchmarked against sbi lending rate. Every year this rate is notified for income tax purposes.

the interest chargeable at sbi rate less any interest charged by the employer is added to the perquisites.

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CMA Swati Agarwal

CMA Swati Agarwal (Querist)
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13 February 2014 Thanks a lot..
Please also let me know sbi lending rate for AY 2014-15

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Anand Eriwal

Anand Eriwal (Expert)
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13 February 2014 I agree with Nikhil Kaushik.

In your case, since it is interest free. Perquisite would be calculated directly on the SBI lending rate existing as on 1st April of the previous year.

One important point to be noted, in case of any repayments, calculation of interest has to be done on a monthly basis. Ie the balance of loan outstanding as on the last day of a particular month should be considered and then calculations should be done... hope that resolves your query....

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CMA Swati Agarwal

CMA Swati Agarwal (Querist)
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14 February 2014 Thanks Nikhil & Anand for the valuable inputs.

Please also guide me as what is the rate of interest of SBI as on 01.04.2013. I am not finding it correctly anywhere.

Nikhil Kaushik

Nikhil Kaushik (Expert)
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14 February 2014 Dear Swati,

please refer www.caclubindia.com/forum/sbi-interest-rate-1-april-2013-281641.asp#.Uv3Vvc4kQp8

if the loan is for general purpose, you need to apply 14.70%

Nikhil Kaushik

Nikhil Kaushik (Expert)
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14 February 2014 By the way Anand...Hi..how are you? I didnt knw you joined Piramal after EY.

CMA Swati Agarwal

CMA Swati Agarwal (Querist)
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17 February 2014 If the loan is for medical purpose for the purpose other than the medical treatments mention in Rule 3A, then what rate of interest to be charged.

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Nikhil Kaushik

Nikhil Kaushik (Expert)
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17 February 2014 well then it should be covered under demand loan only 14.70% p.a