Loan From Employer At Concessional Rates: Know Tax Implications

Amid Covid 19 second wave it was seen that many people were unprepared financially to deal with health exigencies. In such a crisis, people in the formal sector are at an advantage as they can seek financial assistance from their employers either by way of overdraft or loan at concessional rates.

In the latest notification, the government said, financial assistance availed for Covid by employees from the employer will be tax-free in the hands of employees. But based on the company policy, employer also extends loan to employees for various other financial requirements of employees such as for health emergency, child's education, higher education, marriage etc. And this financial assistance sought from the employer as loan will be then taxable for the employee.

Concessional loans from employer attract tax implication as perquisite

Employers based on company-specific policies may extend loan to employees at either zero percent interest rate or concessional rates. Then on such concessional loans income tax is charged as a perquisite in the hands of the employee. The income tax department deems such concessional loans as savings owing to low interest rate as in a case when the loan would be taken from an outside source it would involve a higher cost element.

Say for instance, if you avail a concessional loan from your employer of an amount Rs. 10 lakh at say 5 percent and this in the market is available for say 8% then the interest differential will be added to your perquisites as income, thus increasing your overall salary for taxation purpose.