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1 lakh adavnce to employee

Dipjyoti Majumdar (CA in service & CS. dipmaj@ rediffmail.com ) (3468 Points)

02 January 2012

Friends

An employee has been given Rs 100,000 advance for marriage. It will be adjusted against monthly salary @ 10,000 per month.

Will this be treated as perquisite ? If so, how the interest will be calculated so that it is taxable in the employee's hands ?

Would the answer be different if it would have been a loan ? And if it was for a medical purpose, then ?

Please share your thoughts.

Regards,

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8 Replies

CA.Praveen Ponnappa (CA PRactice) (128 Points)
Replied 02 January 2012

The value of the perquisite shall be the excess of interest payable at the prescribed interest rate over, interest, if any, actually paid by the employee or any member of his household.

The prescribed interest rate would be the rate charged by State Bank of India as on the 1st Day of the relevant Financial Year in respect of loans of the same type and for same purpose advanced by it to general public.

Perquisite is to be calculated on the basis of the maximum outstanding monthly balance method.

However, loans upto20,000/-, loans for medical treatment specified in Rule 3A are exempt, provided the same are not reimbursed under medical insurance.

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Mihir (Wealth Manager) (5293 Points)
Replied 02 January 2012

It is advance against salary, not perquisites.

It will be treated as a loan paid to the employee, and will be recovered by deducting Rs. 10,000/- every month from the salary.

CA Neil Ganatra (Partner - Gautam Joshi & Co.) (871 Points)
Replied 02 January 2012

The value of perquisite shall be calculated as correctly mentioned by MR. Praveen above. However, I would like to correct the limit mentioned. As mentioned in rule - 3 wherein loan given interest free or at concessional rate, if the loan is given for medical treatments as mentioned in rule 3A then it will not be taxable as perquisite irrespective of the amount of loan. In the same way, if the loan is for any other purpose and original amount of loan does not exceed20,000/- then also it will not be taxable. However, if the original loan amount exceeds20,000/- then interest difference as mentioned by Mr. Praveen will be taxable as perquisite irrespective of the loan amount outstanding on 1st April.

Kindly correct me if I am wrong.

CA Neil Ganatra (Partner - Gautam Joshi & Co.) (871 Points)
Replied 02 January 2012

I have attached rule - 3 herewith for your ready reference. Kindly read point no. 7.

Attached File : 147678 898010 rule 3 7 .pdf downloaded: 192 times

Dipjyoti Majumdar (CA in service & CS. dipmaj@ rediffmail.com ) (3468 Points)
Replied 02 January 2012

Praveen and Neil

Thank You. Rule 3A speaks of loan. If the employer company treats the facility offered to employee as advance will the position change. I appreciate that the difference of the two is really very thin and has been subject matter of disputes in various laws / forums.

Regards,