Now It’s CBDT Turn: Loan Interest To Be Computed At SBI Rate

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New Delhi, Feb 1: The Central Board of Direct Taxes (CBDT) has linked the interest rates for valuation of perquisites to State Bank of India (SBI) rates for loans of like maturity period. The new method will mean less taxable income and greater relief for salary earners receiving interest free loans or loans at concessional rate from their employers.

Earlier perquisites were calculated at the rate of 10 per cent for housing loans and 13 per cent for other loans. Henceforth, the revenue department will value the perquisites for housing loans and other loans at the SBI rates. The SBI is offering housing loan at around 7 per cent. For other loans, the interest rate varies depending upon the goods to be purchased or services to be procured.

Explaining new provisions, Ved Kumar Jain, former member of Income Tax Appellate Tribunal, said the step would provide the “much needed and justified relief to salary earners.”

According to finance ministry, the changes in methodology for valuation of perquisites are aimed at bringing the whole exercise in line with the prevailing market realities, especially softening interest rates.

Mr Jain said that many companies provide interest free loans or loans at concessional rates to employees for housing and purchase of other goods. For an interest free housing loan of Rs 5 lakh, the value of perquisite for an employee at 10 per cent interest rate works out to be Rs 50,000. This value, as per the existing methodology, would be included in his taxable income. Under new dispensation, the perquisite would be valued at SBI interest rates for loans of like maturity period. Assuming that the SBI interest rate is 7 per cent, the taxable perquisite value for Rs 5 lakh interest free housing loan would work out to be Rs 35,000.

In case of loans at concessional rates of interest, the difference in the interest rates will be taken into account while working out the value of perquisite. Similarly, for other loans, which companies provide to their employees for purchase of vehicle, household goods etc., the reference rate for computing taxable perquisite would be the SBI rate.