Is it necessary to charge interest on loans to employees as per the Income tax Act ? If yes any way out to provide interest free loans to employees.
4th October 2009 From India, Delhi
As remembered that I have read a book named: Perfect Solutions for Difficult Employee Situations, the Author is Sid Kemp, this is a CWL Publishing Enterprises book produced for McGraw-Hill, CWL Publishing Enterprises - Book Publishing Services- Madison, WI, ISBN0-07-144452-1. Let me excerpt part of it for your perusal.


As a general rule, advances are a bad idea, here’s why:

 They mix the core of a business – money – with the team member’s personal life and personal financial situation.

 No matter how confident you are that the employee is telling the truth, it may not be the whole truth.

 If something unexpected happens and the employee can not pay back then it leads to a great deal of trouble.

So, give an advance only if:

 The employee has already done the work that earns the advance.

 It is very clearly an on-time situation.

 The amount is small and can be made up in the next paycheck.

E.G., a legitimate advance

Let’s say that an employee gets paid every two weeks, with the check arriving a week after the end of the pay period. On the Monday of the second week of the pay period, the employee comes to you and says that his wallet, with a lot of cash and all his credit cards, was stolen over the weekend. He shows you the police report he filed.

In this case, it would make sense to give the employee one week’s pay that day, as an advance on his next paycheck.


4th October 2009 From China, Shanghai
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