Dear all,
I would request your opinion on below issue. We are a company and giving salary advance to employees. Salary advance would be considered as interest free loan and would be considered as perquisite taxable in the hands of employee.
interest free loan or loan at concenssional rate is considered as perquisite u/r 3(7). Value of perquisite would be calculated as under
1) Find out the maximum outstanding balance as on the last day of the each month.
2) Find out the rate of interest charged by SBI on the first day of the relevant previous year.
3) Calculate interest for each month on the outstanding balance calculated in step 1 at the rate calculated in step 2.
4) Total Interest calculated for the previous year in step 3, deduct interest if any recovered from employee. Balance amount is taxable perquisite.
I have checked the SBI lending rate and the rate for personal loan is 18.5%
My query is
1) Is it ok to apply SBI lending rate of 18.5%?
2) Will entire 18.5% be taxable in hands of employee?
As per new companies act, company has to charge 9% interest to employee for any loan. Considering this is 18.5% a reasonable to charge from employee and add to his salary? Also should 9% be considered as interest expenses and balance 9.5% be considered as salary expenses??
Request your valuable opinion.
Thanks.
CAclubindia
