Interest-free or concessional loans given by banks to staff taxable as fringe benefits, rules SC
The Supreme Court has upheld the Income Tax Rule that makes interest free or concessional loan benefits given by banks to its employees taxable. Dismissing appeals that challenged Rule 3(7)(i) of the Income Tax Rules, 1962 and Section 17(2)(viii) of the Income Tax Act, 1961, the apex court said such benefits enjoyed by bank employees were “unique” and in the nature of a ‘perquisite,’ hence make case for taxation.
The Court was deciding a batch of appeals filed by staff unions and officers’ associations of various banks against the rules.
"The employer’s grant of interest-free loans or loans at a concessional rate will certainly qualify as a ‘fringe benefit’ and ‘perquisite’, as understood through its natural usage in common parlance," the bench added.
A bench comprising justices Sanjiv Khanna and Dipankar Datta termed “perquisite” a fringe benefit attached to the post held by the employee unlike ‘profit in lieu of salary’.
"It is incidental to employment and in excess of or in addition to the salary. It is an advantage or benefit given because of employment, which otherwise would not be available,” it said.
The appeals termed arbitrary the rule that stipulated interest-free/concessional loan benefits provided by banks to bank employees shall be taxable as ‘fringe benefits’ or ‘amenities’ if the interest charged by the bank on such loans is lesser than the interest charged according to Prime Lending Rate of the State Bank of India.
"By fixing a single clear benchmark for computation of the perquisite or fringe benefit, the rule prevents ascertainment of the interest rates being charged by different banks from the customers and, thus, checks unnecessary litigation," the court said. Since SBI is India's largest bank, the interest rates fixed by it invariably impact and affect the rates charged by other banks, it added.