New Delhi: The Supreme Court of India on Wednesday upheld the validity of Section 17(2)(viii) and Section 3(7)(i) of the Income Tax Act, which means that the money saved by taking interest-free or low-interest loans from employers will be taxable as held by it. A setback employee of public sector bank, the Supreme Court has ruled that any funds you have saved in taking a zero-percent or below market percent loan from your employer should be taxed under section 17(2)(viii) and section 3(7)(i) of I.T.A.
The announcement came while dismissing a petition filed by All India Bank Executives Federation and employee unions in several banks apart from an appeal filed by Association for Senior Executives who had pleaded for these provisions to be declared invalid. It is a peculiar benefit they enjoy in form of interest free loan Or preferential rate loans; this is “perquisite” and so taxable,” the judge said.
Under such circumstances, when a bank worker receives an interest-free or concessional loan, he saves some amount every year at market rate than what he would have paid if he applied for ordinary credit from SBI on equal terms with other citizens subject to income tax. According to rules, whenever a bank employee takes an interest-zeroed or subsidized loan; all amounts not paid as interests attract market rate interests each year vis-a-vis what’s levied upon a common citizen borrowing same amount but through State Bank of India (SBI), attracting tax liability.
Justice Khanna quoted that value of such concessionary loans or no charge rates must now be considered as “other fringe benefits or facilities” and brought into tax net. “Interest free loan/loan at concessions offered by employer would definitely qualify under ‘perks’ and ‘fringe benefits’ in their natural sense,” he added.
“A perk is related to job position’s fringe benefit that is different from ‘profit in lieu of salary’ which is payment for services rendered in the past or future. It’s an adjunct to employment and is over and above or besides salary earned by an individual due to job, being available but without this advantage/benefit,” said the judge. Thus, creating subordinate rule-making legislation to charge tax on free interest loans as fringe benefit under section 17(2)(viii) of the Act and article 3(7)(i) does not constitute excessive delegation but well within the permissible limit,” it added.
“Accordingly, Section 17(2) clearly spells out legislative policy and lays down benchmarks for rule making authority. Hence, rule 3(7)(i) falls within the ambit of section 17 (2) (viii) of the Act,” stated by Supreme Court. As Justices Khanna and Datta put it, “Rule 3(7)(i) provides for SBI’s rate of interest(i.e., PLR), so that a comparison can be made with rates charged by other individual banks for computing value of benefit to assessee.” The selection of SBI rate as a benchmark is neither arbitrary nor an unequal exercise of power.
