Home / Money / Personal Finance /  Availed concessional loan from employer amid covid? Know the tax implications

With the covid-19 pandemic causing severe financial stress, a lot of people have sought help from their employers to meet medical expenses. While some employers have paid for covid-19 treatment of their employees, others have provided loans to pay for it.

If an employer provides financial assistance to pay for covid treatment, it is tax-free in the hands of the employee, as per the government's recent notification. If the employer provides help in the form of a loan at a concessional rate, the benefit derived through the rate is taxable. Employees may avail loans from employers to fund children’s education, medical emergency, marriage, etc, depending on the company's policies. Employers may offer these loans at zero or low-interest rates. However, the benefit derived from a lower interest rate will be considered as perquisite in the hand of the employee.

“Employers need to be extra careful as the tax department levies tax on such benefit considering it as perquisite in the hands of the employee since they are benefited in terms of savings in interest amount which they otherwise had to pay had the loan was taken from outside. The employer is liable to deduct TDS on this income as it forms part of the salary. However, if the employer fails to deduct the TDS, it becomes the obligation of the employee to pay taxes on it," said Tarun Kumar, a Delhi-based chartered accountant.

There is a method of calculation of the tax amount. “The taxable value in the hands of the employee shall be calculated on monthly basis on the outstanding balance of the loan on the last day of each month. The interest shall be computed on this amount at the rate of interest as charged by the State Bank of India on the first day of the relevant financial year in respect of a similar loan (say, education loan, vehicle loan, home loan or personal loan). This interest is reduced by interest, if any, recovered from the employee. The balance amount shall be taxable in the hands of the employee as perquisite," said Kumar.

There are certain exceptions to the rule. In case the amount of loan given to the employee is up to 20,000 in aggregate, it is not taxable. If the loan is taken for medical treatment of specified diseases in approved hospitals, the same will not be taxable.

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