How to solve interest problem in perquisite

CA.ViVeK M ACA (ACCOUNTS DEPARTMENT) (28544 Points)

23 March 2011

In computing the value of benefit or amenity, any amount paid or recovered or borne by the employee or any member of the house hold shall be reduced and the balance amount shall be charged to tax as perquisite in the hand of employee.

1) Interest Free housing loan

The value of benefit or amenity on account of interest free or concessional loan made available to him shall be determined as a sum equal to the interest computed at the rates charges by SBI as on the first day of the relevant previous year in respect of loan made to the similar purpose during the first day of the relevant previous year.

SBI schedule for AY 2011-12 is as follows

Nature of loan	periods	Rate
Housing Loan	0 to 20 years	8%
car	0 to 7 years	8%
Education	Up to 4 lakh	11.25%
	Above 4 to 7.5 lakh	12.75%
	above 7.5	11.75%
Personal loan		16%
Two wheeler		15.75%

Interest shall be calculated on the basis of maximum monthly outstanding balance.

Application of the above concepts

1) The loan may be availed at concessional rate of interest. The difference between SBI Rate and rate in which loan was availed shall be perquisite as far as the assessee is concerned.

2) If the problem consists of Rate of interest and EMI details and principle details then you have to apply the concepts of maximum monthly outstanding balance during the previous year only.

3) Maximum monthly outstanding balance means the maximum principle amount which is remains outstanding during the previous year. Interest should be calculated on outstanding principle amount.

4) Interest rate should be applied both the rate at which loan was availed from the employee and SBI rates. This means you have to calculate the maximum monthly outstanding balance of two interest rates.

Example no 1

Where the EMI details are missing

Mr X availed a personal loan of Rs 5, 00,000/- on 1/10/2010 with interest rate of 10 %. What is the value of perquisite in his case?

Solution

You have just Check Two points here

1. Whether the loan was availed in-between the previous year if so take the fraction periods in to the consideration.

2. Whether the EMI details are missing.

The loan was availed during the mid of the financial period and question does not contain the EMI details. The value of perquisite will be as follows.

5, 00,000/-*(16%-10%)*6/12= Rs 15,000/-

2. in case where EMI details are available.

Mr X availed a personal loan of Rs 5, 00,000/- on 1/10/2010 with interest rate of 10 %. The loan is required to be paid over a period of 3 year and monthly EMI where Rs 16,134/- First EMI falls due on end of the month and which will be recovered from his monthly salary. What is the value of perquisite in his case?

You have to do the following.

Calculate what the principle amount outstanding is on each month. Loan taken less Principle portion of EMI.

Calculate the monthly interest on outstanding balance.

Interest As per Employee Rate @ 10%

Month	Loan At Begin	EMI	Principle	Interest	Outstanding Balance
October	500000	16134	11967.33	4166.67	488033
November	488033	16134	12067.06	4066.94	475966
December	475966	16134	12167.62	3966.38	463798
January	463798	16134	12269.02	3864.98	451529
February	451529	16134	12371.26	3762.74	439158
March	439158	16134	12474.35	3659.65	426683
				23487.4

	Interest Rate Prescribed By SBI @ 16%
Month	Loan At Begin	EMI	Principle	Interest	Outstanding Balance
October	500000	16134	9467.333	6666.67	490533
November	490533	16134	12046.23	4087.77	478486
December	478486	16134	12146.61	3987.39	466340
January	466340	16134	12247.83	3886.17	454092
February	454092	16134	12349.9	3784.1	441742
March	441742	16134	12452.82	3681.18	429289
				26093.3


	Calculation of taxable perquisite

	Inerest As per Option 2		26093.28
	Interest As per otion 1		23487.36
	Perquisite		2605.917