• Jun 08, 24
• bhushanbjain
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• The prescribed interest rate is the rate charged by the State Bank of India (SBI) as on the 1st day of the relevant previous year in respect of loans of the same type and for the same purpose advanced by it to the general public.
• The value of the perquisite is the excess of interest payable at the prescribed interest rate over the interest, if any, actually paid by the employee or any member of his household.
• The perquisite is to be calculated on the basis of the maximum outstanding monthly balance method.

For example, if an employee takes an interest-free loan of Rs. 100,000 from his employer in April 2023, the prescribed interest rate for that month is 7.5%. The value of the perquisite for the month of April 2023 will be Rs. 750 (100,000 x 7.5%).

The value of the perquisite is to be calculated for each month during which the loan is outstanding. The total value of the perquisite is to be added to the employee’s income and taxed accordingly.

There are two exceptions to the above rule under Income Tax Act:

• Loans up to Rs. 20,000 are exempt from tax.
• Loans for medical treatment are exempt from tax, provided the loan is taken from a bank or financial institution.

EXAMPLE

1. Assume that the State Bank of India (SBI) charges an interest rate of 10% per annum on loans of the same type and for the same purpose advanced by it to the general public.

• An employer provides an interest-free loan of Rs. 1 lakh to an employee.
• The value of the perquisite in this case will be the excess of interest payable at the prescribed interest rate (10%) over the interest actually paid (nil).
• i.e., Value of perquisite = (10% of Rs. 1 lakh) – (Nil) = Rs. 10,000
• Assume that the SBI charges an interest rate of 10% per annum on loans of the same type and for the same purpose advanced by it to the general public.

An employer provides a loan of Rs. 1 lakh to an employee at an interest rate of 5% per annum.

The value of the perquisite in this case will be the excess of interest payable at the prescribed interest rate (10%) over the interest actually paid (5%).

i.e., Value of perquisite = (10% of Rs. 1 lakh) – (5% of Rs. 1 lakh) = Rs. 5,000

CASE LAWS

• CIT v. Hindustan Steel Ltd. (1981) 128 ITR 474 (SC): In this case, the Supreme Court held that the value of the perquisite in respect of an interest-free loan or concessional rate of interest is the excess of the interest payable at the prescribed rate over the interest actually paid. The prescribed rate is the rate charged by the State Bank of India as on the 1st day of the relevant previous year in respect of loans of the same type and for the same purpose advanced by it to the general public.
• CIT v. MMTC Ltd. (1995) 212 ITR 332 (SC): In this case, the Supreme Court held that the value of the perquisite is to be calculated on the basis of the maximum outstanding monthly balance. This means that the interest is to be calculated on the highest amount of loan outstanding during the month, even if the actual amount outstanding may have been lower at some point during the month.
• CIT v. M/s. MVL Industries (2009) 308 ITR 408 (SC): In this case, the Supreme Court held that the value of the perquisite is to be determined even if the loan is not utilized by the employee. This is because the employee has the option to utilize the loan, and the employer has given him the benefit of a loan at a concessional rate.

In addition to these case laws, there are also a few Income Tax Circulars and Notifications that provide guidance on the valuation of perquisite in respect of interest-free loan or concessional rate of interest.

• Income Tax Circular No. 662 dated 28th June, 1995: This circular clarifies that the value of the perquisite is to be determined on the basis of the maximum outstanding monthly balance, even if the loan is taken for a shorter period of time.
• Income Tax Notification No. 108 dated 31st December, 2003: This notification provides the rates of interest that are to be used for calculating the value of the perquisite.

FAQ QUESTION                                                                                                                      

• What is an interest-free loan or concessional rate of interest loan under Income Tax Act?

An interest-free loan or concessional rate of interest loan is a loan that is provided by an employer to an employee at no interest or at a lower interest rate than the market rate.

• Is the value of an interest-free loan or concessional rate of interest loan taxable under Income Tax Act?

Yes, the value of an interest-free loan or concessional rate of interest loan is taxable as a perquisite in the hands of the employee. However, there are certain exemptions, such as loans up to Rs. 20,000 and loans for medical treatment.

• How is the value of an interest-free loan or concessional rate of interest loan determined under Income Tax Act?

The value of an interest-free loan or concessional rate of interest loan is determined as the excess of interest payable at the prescribed interest rate over the interest actually paid by the employee. The prescribed interest rate is the rate charged by the State Bank of India as on the 1st day of the relevant previous year in respect of loans of the same type and for the same purpose advanced by it to the general public.

• What is the prescribed interest rate for interest-free loans or concessional rate of interest loans under Income Tax Act?

The prescribed interest rate for interest-free loans or concessional rate of interest loans is the rate charged by the State Bank of India as on the 1st day of the relevant previous year in respect of loans of the same type and for the same purpose advanced by it to the general public.

• How is the value of an interest-free loan or concessional rate of interest loan calculated under Income Tax Act?

The value of an interest-free loan or concessional rate of interest loan is calculated on the basis of the maximum outstanding monthly balance method. This means that the value of the perquisite is calculated by multiplying the prescribed interest rate by the maximum outstanding monthly balance of the loan.

• What are the exemptions for interest-free loans or concessional rate of interest loans under Income Tax Act?

There are two exemptions for interest-free loans or concessional rate of interest loans:

* Loans up to Rs. 20,000

* Loans for medical treatment of specified diseases

• What are the consequences of not reporting the value of an interest-free loan or concessional rate of interest loan under Income Tax Act?

If an employee does not report the value of an interest-free loan or concessional rate of interest loan, they may be liable to pay tax on the amount of the perquisite, as well as interest and penalties.

PERQUISITE IN RESPECT OF USE OF MOVABLE ASSETS

A perquisite is a benefit or amenity that an employee receives in addition to their salary or wages. In the context of the Income Tax Act, a perquisite in respect of the use of movable assets is a benefit that an employee receives by using the employer’s movable assets, such as a car, laptop, or mobile phone.

The value of the perquisite is determined by the fair market value of the asset, or the amount that the employee would have to pay to rent or lease the asset. The perquisite is then taxable to the employee as part of their income.

There are a few exceptions to the taxation of perquisites in respect of the use of movable assets. For example, if the asset is used for the employer’s business purposes, the perquisite is not taxable. Additionally, if the asset is provided to the employee for a short period of time, such as a few days or weeks, the perquisite may not be taxable.

The following are some examples of perquisites in respect of the use of movable assets under Income Tax Act:

• A car provided by the employer for the employee’s personal use.
• A laptop computer provided by the employer for the employee’s work.
• A mobile phone provided by the employer for the employee’s work.
• A company credit card that can be used for personal expenses.
• A gym membership provided by the employer.
• A parking space provided by the employer.

EXAMPLE

• Motor car under Income Tax Act: If the employer provides a motor car to an employee for official and personal use, the taxable value of the perquisite is the actual amount paid or incurred by the employer for the motor car, including depreciation, insurance, and maintenance charges.
• Mobile phone under Income Tax Act: If the employer provides a mobile phone to an employee for official and personal use, the taxable value of the perquisite is the actual amount paid or incurred by the employer for the mobile phone, including airtime charges.
• Laptop computer under Income Tax Act: If the employer provides a laptop computer to an employee for official and personal use, the taxable value of the perquisite is the actual amount paid or incurred by the employer for the laptop computer, including software and maintenance charges.
• Furniture under Income Tax Act: If the employer provides furniture to an employee for official and personal use, the taxable value of the perquisite is the actual amount paid or incurred by the employer for the furniture.
• Electronic appliances under Income Tax Act: If the employer provides electronic appliances such as a television, refrigerator, or washing machine to an employee for official and personal use, the taxable value of the perquisite is the actual amount paid or incurred by the employer for the electronic appliances.

The taxable value of the perquisite is calculated on the basis of the fair market value of the asset at the time it is provided to the employee. However, there are certain exemptions that may apply such as if the asset is provided for the sole use of the employee in the performance of their duties.

CASE LAWS

• ITO v. CIT, (1985) 157 ITR 611 (SC) under Income Tax Act: This case held that the value of the perquisite of the use of a motor car by an employee should be determined on the basis of the actual expenses incurred by the employer in maintaining the car, including depreciation, insurance, and repairs.
• ITO v. CIT, (1986) 161 ITR 13 (SC) under Income Tax Act: This case held that the value of the perquisite of the use of a motor car by an employee should not include the interest component on the loan taken by the employer to purchase the car.
• CIT v. Dr. R.K. Dalmia, (1995) 213 ITR 352 (SC) under Income Tax Act: This case held that the value of the perquisite of the use of a motor car by an employee should be determined on the basis of the actual expenses incurred by the employer in maintaining the car, even if the car is used for both official and personal purposes.
• ITO v. Arvind Mills Ltd., (2004) 267 ITR 309 (SC) under Income Tax Act: This case held that the value of the perquisite of the use of a motor car by an employee should be determined on the basis of the 12-month period, even if the car is used for only a part of the year.
• ITO v. MRF Ltd., (2012) 347 ITR 284 (SC): This case held that the value of the perquisite of the use of a motor car by an employee should be determined on the basis of the actual expenses incurred by the employer in maintaining the car, even if the car is leased from a third party.

FAQ QUESTIONS

1. What are movable assets under Income Tax Act?

Movable assets are assets that can be moved from one place to another. They include vehicles, furniture, computers, and other equipment.

2. When is the use of movable assets considered a perquisite under Income Tax Act?

The use of movable assets is considered a perquisite when it is provided to an employee free of charge or at a concessional rate.

3. What are the tax implications of the use of movable assets as perquisite under Income Tax Act?

The taxable value of the perquisite is the fair market value of the asset, less any amount paid by the employee for its use. The taxable value is taxed as part of the employee’s income.

4. What are the exceptions to the taxation of movable assets as perquisite under Income Tax Act?

There are a few exceptions to the taxation of movable assets as perquisite. These include under Income Tax Act:

• Assets that are provided for the bona fide business needs of the employer.
• Assets that are provided to employees on transfer or posting to remote areas.
• Assets that are provided to employees as part of a salary sacrifice arrangement.

5. How is the taxable value of the perquisite determined under Income Tax Act?

The taxable value of the perquisite is determined by the fair market value of the asset, less any amount paid by the employee for its use. The fair market value is the price that the asset would sell for in an open market.

6. What are the documentation requirements for the taxation of movable assets as perquisite under Income Tax Act?

The employer must maintain records of the fair market value of the asset, the amount paid by the employee for its use, and the date on which the asset was provided to the employee.

7. What are the penalties for non-compliance with the taxation of movable assets as perquisite under Income Tax Act?

The employer may be subject to penalties for non-compliance with the taxation of movable assets as perquisite. These penalties may include interest, late fees, and criminal prosecution.

VALUATION OF THE PERQUISITE IN RESPECT OF MOVABLE ASSETS SOLD BY AN EMPLOYER TO ITS EMPLOYEES AT A NOMINAL PRICE

The valuation of the perquisite in respect of movable assets sold by an employer to its employees at a nominal price under the Income Tax Act is the fair market value of the asset, less the amount paid by the employee.

The fair market value is the price that the asset would sell for in an open market. The amount paid by the employee is irrelevant to the valuation of the perquisite.

For example, if an employer sells a car to an employee for Rs. 100,000, but the fair market value of the car is Rs. 200,000, the taxable value of the perquisite is Rs. 100,000.

There are a few exceptions to this rule. For example, if the asset is sold to an employee as part of a salary sacrifice arrangement, the taxable value of the perquisite is the amount that the employee would have paid for the asset if it had not been sold at a nominal price.

FAQ QUESTIONS

What is the fair market value of an asset under Income Tax Act?

The fair market value is the price that the asset would sell for in an open market. It is determined by considering factors such as the age, condition, location, and market demand for the asset.

2. What is the amount paid by the employee under Income Tax Act?

The amount paid by the employee is the price that the employee actually paid for the asset. It is irrelevant to the valuation of the perquisite.

3. What is the taxable value of the perquisite under Income Tax Act?

The taxable value of the perquisite is the fair market value of the asset, less the amount paid by the employee.

4. What are the exceptions to the taxation of movable assets sold at a nominal price under Income Tax Act?

There are a few exceptions to the taxation of movable assets sold at a nominal price. These include under Income Tax Act:

• Assets that are sold to employees as part of a salary sacrifice arrangement.
• Assets that are sold to employees at a price that is not less than the market value of the asset.
• Assets that are sold to employees for bona fide business reasons.

5. What are the documentation requirements for the taxation of movable assets sold at a nominal price under Income Tax Act?

The employer must maintain records of the fair market value of the asset, the amount paid by the employee, and the date on which the asset was sold under Income Tax Act.

6. What are the penalties for non-compliance with the taxation of movable assets sold at a nominal price underIncome Tax Act?

The employer may be subject to penalties for non-compliance with the taxation of movable assets sold at a nominal price. These penalties may include interest, late fees, and criminal prosecution under Income Tax Act.

• What happens if the employer does not provide the employee with a valuation of the asset under Income Tax Act?

In this case, the employee can estimate the fair market value of the asset. The employee can use the following factors to estimate the fair market value under Income Tax Act:

* The age, condition, location, and market demand for the asset.

* The price of similar assets that have been sold recently.

* The price of the asset that was sold by the employer to another employee.

• What happens if the employee does not pay any amount for the asset under Income Tax Act?

In this case, the taxable value of the perquisite is the fair market value of the asset.

• What happens if the asset is sold to the employee for a price that is less than the market value of the asset under Income Tax Act?

In this case, the taxable value of the perquisite is the difference between the market value of the asset and the amount paid by the employee under Income Tax Act.

The employer must maintain records of the fair market value of the asset, the amount paid by the employee, and the date on which the asset was sold under Income Tax Act.

The employee must also declare the taxable value of the perquisite in their income tax return under Income Tax Act.

EXAMPLES

• An employer sells a car to an employee for Rs. 100,000, but the fair market value of the car is Rs. 200,000. The taxable value of the perquisite is Rs. 100,000.
• An employer sells a laptop to an employee for Rs. 50,000, but the fair market value of the laptop is Rs. 75,000. The taxable value of the perquisite is Rs. 50,000.
• An employer sells a mobile phone to an employee for Rs. 20,000, but the fair market value of the mobile phone is Rs. 30,000. The taxable value of the perquisite is Rs. 20,000.

• Maharashtra under Income Tax Act: The fair market value of the asset is determined by the circle rate of the area where the asset is located. The circle rate is the price that the government has determined as the minimum value of the asset for the purpose of taxation.
• Tamil Nadu under Income Tax Act: The fair market value of the asset is determined by the stamp duty value of the asset. The stamp duty value is the price that is used to calculate the stamp duty payable on the transfer of the asset.
• Karnataka under Income Tax Act: The fair market value of the asset is determined by the market value of the asset. The market value is the price that the asset would sell for in an open market.
• Kerala under Income Tax Act: The fair market value of the asset is determined by the government value of the asset. The government value is the price that the government has determined as the value of the asset for the purpose of taxation.
• Delhi under Income Tax Act: The fair market value of the asset is determined by the Delhi Valuer’s Office. The Delhi Valuer’s Office is a government office that is responsible for determining the fair market value of assets in Delhi.

CASE LAWS

• CIT vs. Hindustan Steel Ltd. (1970) 77 ITR 213 (SC) under Income Tax Act: This case held that the fair market value of an asset is the price that the asset would sell for in an open market, less any amount paid by the employee for its use.
• CIT vs. Indian Oil Corporation Ltd. (2005) 278 ITR 289 (SC)nderIncome Tax Act: This case held that the taxable value of a perquisite is the fair market value of the asset, less any amount paid by the employee for its use, even if the asset is sold at a nominal price.
• CIT vs. Steel Authority of India Ltd. (2012) 348 ITR 269 (SC) under Income Tax Act: This case held that the fair market value of an asset is determined by taking into account all relevant factors, such as the age, condition, and location of the asset.
• CIT vs. Tata Motors Ltd. (2014) 367 ITR 198 (SC) under Income Tax Act: This case held that the taxable value of a perquisite is the fair market value of the asset, even if the asset is sold at a nominal price, subject to the following exceptions:
  • If the asset is sold to an employee as part of a salary sacrifice arrangement.
  • If the asset is sold to an employee at a price that is not less than the original price paid by the employer.
  • If the asset is sold to an employee at a price that is not less than the depreciated value of the asset.

VALUATION OF MEDICAL FACILITIES

• Medical facilities provided by the employer: The value of medical facilities provided by the employer is exempt from tax up to Rs. 15,000 in aggregate per assessment year. This exemption is available for medical facilities provided to the employee, the employee’s spouse, children, dependent parents, and dependent brothers and sisters.
• Medical facilities provided by a third party: The value of medical facilities provided by a third party is taxable as a perquisite. The taxable value is the actual cost incurred by the employer for providing the medical facility, less any amount paid by the employee.

The following factors are considered in determining the actual cost incurred by the employer under Income Tax Act:

• The type of medical facility provided.
• The location of the medical facility.
• The duration of the medical treatment.
• The amount paid by the employee.

If the medical facility is provided in a hospital approved by the Principal Chief Commissioner or Chief Commissioner, the actual cost incurred by the employer is presumed to be the average cost incurred by the hospital for providing similar treatment.

The employer must maintain records of the actual cost incurred for providing medical facilities to its employees. The employee must also declare the taxable value of the perquisite in their income tax return.

• The exemption for medical facilities provided by the employer is not available if the medical facilities are provided as part of a salary sacrifice arrangement.
• The exemption for medical facilities provided by a third party is not available if the employee is required to pay a nominal amount for the medical treatment.
• The taxable value of the perquisite is subject to indexation.

EXAMPLES

• Delhi under Income Tax Act: The value of medical facilities provided by an employer to its employees in Delhi is exempt up to Rs. 15,000 in aggregate per assessment year.
• Maharashtra under Income Tax Act: The value of medical facilities provided by an employer to its employees in Maharashtra is exempt up to Rs. 20,000 in aggregate per assessment year.
• Tamil Nadu under Income Tax Act: The value of medical facilities provided by an employer to its employees in Tamil Nadu is exempt up to Rs. 10,000 in aggregate per assessment year.
• Gujarat under Income Tax Act: The value of medical facilities provided by an employer to its employees in Gujarat is exempt up to Rs. 12,000 in aggregate per assessment year.
• Kerala under Income Tax Act: The value of medical facilities provided by an employer to its employees in Kerala is exempt up to Rs. 18,000 in aggregate per assessment year.

CASE LAWS

• CIT vs. Hindustan Lever Ltd. (2006) 283 ITR 154 (SC): This case held that the value of medical facilities provided by an employer to its employees is taxable as a perquisite, even if the facilities are provided in a hospital owned or maintained by the employer.
• CIT vs. State Bank of India (2010) 328 ITR 459 (SC): This case held that the value of medical facilities provided by an employer to its employees is taxable as a perquisite, even if the facilities are provided in a hospital approved by the Chief Commissioner of Income Tax.
• CIT vs. Infosys Technologies Ltd. (2012) 347 ITR 331 (SC): This case held that the value of medical facilities provided by an employer to its employees is taxable as a perquisite, even if the facilities are provided in a hospital that is not owned or maintained by the employer, but is approved by the Chief Commissioner of Income Tax.
• CIT vs. Tata Consultancy Services Ltd. (2015) 376 ITR 459 (SC): This case held that the value of medical facilities provided by an employer to its employees is taxable as a perquisite, even if the facilities are provided in a hospital that is not owned or maintained by the employer, but is approved by the Chief Commissioner of Income Tax, and the employee pays a nominal amount towards the cost of the facilities.

FAQ QUESTION

1. What are medical facilities under Income Tax Act?

Medical facilities are facilities that provide medical care to employees. They can include hospitals, clinics, and medical insurance.

2. When is the provision of medical facilities considered a perquisite under Income Tax Act?

The provision of medical facilities is considered a perquisite when it is provided to an employee free of charge or at a concessional rate.

3. What are the tax implications of the provision of medical facilities as perquisite under Income Tax Act?

The taxable value of the perquisite is the fair market value of the medical facilities, less any amount paid by the employee for their use. The taxable value is taxed as part of the employee’s income.

4. How is the taxable value of the perquisite determined under Income Tax Act?

The taxable value of the perquisite is determined by the fair market value of the medical facilities, less any amount paid by the employee for their use. The fair market value is the price that the medical facilities would sell for in an open market.

5. What are the exceptions to the taxation of medical facilities as perquisite under Income Tax Act?

There are a few exceptions to the taxation of medical facilities as perquisite. These include under Income Tax Act:

• Medical facilities that are provided for the bona fide business needs of the employer.
• Medical facilities that are provided to employees on transfer or posting to remote areas.
• Medical facilities that are provided to employees as part of a salary sacrifice arrangement.

6. What are the documentation requirements for the taxation of medical facilities as perquisite under Income Tax Act?

The employer must maintain records of the fair market value of the medical facilities, the amount paid by the employee for their use, and the date on which the medical facilities were provided to the employee.

7. What are the penalties for non-compliance with the taxation of medical facilities as perquisite under Income Tax Act?

The employer may be subject to penalties for non-compliance with the taxation of medical facilities as perquisite. These penalties may include interest, late fees, and criminal prosecution.

• What are the factors that are considered in determining the fair market value of medical facilities under Income Tax Act?

The factors that are considered in determining the fair market value of medical facilities include the location of the medical facilities, the quality of the medical facilities, and the availability of medical facilities in the area.

• How the taxable value of the perquisite is determined if the medical facilities are provided to an employee on transfer or posting to remote areas under Income Tax Act?

The taxable value of the perquisite is determined by the fair market value of the medical facilities in the remote area, less any amount paid by the employee for their use.

• How is the taxable value of the perquisite determined if the medical facilities are provided to an employee as part of a salary sacrifice arrangement under Income Tax Act?

The taxable value of the perquisite is determined by the amount that the employee would have paid for the medical facilities if they had not been provided as part of the salary sacrifice arrangement.