Interest free Loan to Employees

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This query is : Resolved

Satendra (Querist)

02 July 2009 An employer is giving Salary Advance to his employees as per company policy and other things such as TDS etc. is also adjust in that same account. In this case is this account should be treated as Loan to Employees and interest should be charged as perquisite in the hands of employees.

Guest

Guest (Expert)

02 July 2009 Dear Satendra,

It's depends upon the company policy that the amount is interest free or not, but it comes under Other current assets- Employee advance.

If you have still doubt, write me PM.

Bindu Madhav

Bindu Madhav (Expert)

02 July 2009 Advance and loan will be bifurcated based on the nature, reasons, types of payments etc.
If advance no perquisite.
If it is loan - then perquisite needs to be calculated.

Advance/loan will be decided based on the above conditions. For ex: if amount is very high than salary & repayment is in small stretches - they may treat as loan instead of advance.

As we know in general advance will be given only few months salary (1 month/2/3months max). Another thing is travel advance which needs to be settled on return. At no imagination, we can't call this as loan. So, whether the amount given to the employees is loan/advance is purely dependent on the facts, which is the obligation on the company to prove it is not loan it is only advance if they are not charging any perq

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