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In a recent decision made by Income Tax Appellate Tribunal, Mumbai in case of Neha Saraf  vs. ACIT Range 13(3) [ITA No. 2172/M/2016] it has been decided that where an employee receives Interest Free loan from the employer it shall be taxable in the hands of the employee as salary as per the provisions of the section.

Brief facts of the case:

In the Instant case, the Assessee has filed her return of income for Assessment Year 2011-12 on 26.09.11 declaring total income of Rs.34,90,510/- consisting of income from salary and income from other sources.

During the course of assessment, the AO noted that the Assessee was employed with M/s. TeejImpex Pvt. Ltd. and had obtained interest free unsecured loan from the said employer. Since the Assessee is drawing a salary from the employer on per month basis, in view of the provisions of section 17(iii)(c), the value of any benefit obtained by the employee by way of interest free unsecured loan is assessable as perquisite and chargeable to tax.

The AO further observed that it is also evident from the fact that the Assessee has obtained benefit by way of interest free unsecured loan which is chargeable to tax as perquisite under section 17(iii)(c) of the Income Tax Act, 1961 and accordingly determined value of perquisite by invoking rule 3(7)(i) of the Income Tax Rules, 1962 and estimated 15% interest on such loan and made additions of Rs. 43,80,165/-.

Appeal to the CIT(A) was moved, however, the addition made by the Ld. AO was also confirmed by the CIT(A) in his order. The same decision was upheld by the ITAT in their decision on 16th May 2018.

Compliance for Employers:

From the above decision it can be clearly noted that “An employer is liable to treat an Interest-free loan as a taxable perquisite u/s 17 and TDS is to be deducted from salary u/s 192.”

However, an exemption to this general rule is there, where any such loan is given for the medical treatment of specified disease or where such loan is less than Rs. 20,000 – No such provisions are applicable.

Point of Importance for Employees:

If in any circumstances, the employee fails to report such loan in their Income tax returns, in such cases they might be made liable for a penalty ranging from 50% to 200% on account of under-reporting or misreporting.


Published by

Prajjwal Kaushik
(Finance Professional)
Category Income Tax   Report

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