Public sector bank employees are preparing for an unwelcome year-end surprise — a retrospective tax on perquisites to be paid this financial year. While State Bank of India (SBI) and Bank of Baroda (BOB) will cover the tax liability for their employees, Punjab National Bank (PNB) and Union Bank of India have asked employees to bear the cost. Meanwhile, other public sector banks remain undecided, leaving employees anxiously awaiting clarity on who will bear the burden.
To ease the financial strain, PNB is offering personal loans to employees, as individual tax liabilities range from Rs 25,000 to Rs 5 lakh. However, employees availing of this facility will have to again pay perquisite tax on this personal loan.
“It is a vicious circle for bank employees. First the employees will take a personal loan from the bank to pay the tax, and then they will again pay the tax on that loan,” said Krishna Kumar, general secretary, All India Punjab National Bank Officers’ Federation. “Like SBI and Bank of Baroda, PNB should also bear the burden and pay perquisite tax on behalf of its employees,” added Kumar.
The total tax outgo for PNB on perquisite tax for the current financial year is estimated to be Rs 400-Rs 500 crore. PNB is offering personal loans of up to Rs 4 lakh for officers and up to Rs 2.25 lakh for other employees.
Earlier in 2007, the All India Bank Officers Confederation and its affiliates had filed a petition in the Madras High Court challenging the taxability of interest-free or concessional loans given to bank employees. After the High Court judgement did not come in favour of the bank employees, they took their fight to the Supreme Court. The Supreme Court, in its ruling delivered in May this year, upheld the taxation of interest-free or concessional loans given by banks to their employees as fringe benefits and perquisites.
Banks have already communicated with employees that the tax deductions will start next month. Employees are required to pay tax retrospectively from April this year.
“We have received a letter last week stating that TDS (Tax Deducted at Source) will be recovered from salaries between December 2024 and March 2025. Tax on perquisites related to festival advances and loans for insurance premiums will be deducted from the December 2024 salary, while deductions for other perquisite components will begin in January 2025,” said a senior official of Union Bank of India.
While other banks are still contemplating their next move on this tax, bankers are of the view that larger banks with strong balance sheets and healthy profits should pay the tax on employees’ behalf. In the case of smaller banks, the government should come forward and announce some relief measures, say bankers.
Banks offer loans at a concessional rate to their employees. Currently, if a customer gets a housing loan at 8.50% or 9%, bank employees get the same loan at around 6%. As per the ruling, the Prime Lending Rate (PLR) of SBI is the benchmark for computing perquisite tax on interest-free or concessional loans given to bank employees.