Can We Deduct Income Tax on a Company Loan? Seeking Guidance on Salary Slip Deductions

My salary package is Rs. 600,000 per annum. Additionally, I receive Rs. 9,600 as Conveyance Allowance, Rs. 120,000 as House Rent Allowance (HRA), Rs. 50,000 towards Tuition Fees, and invest Rs. 40,000. Furthermore, I pay Rs. 3,500 for LIC and Mediclaim.

I kindly request assistance with tax calculation.

Bijender Vats
Contact Number: 9310667075, 9312684491
Email ID: rvagil_rmc@yahoo.com

Jaisharma2007

Hi,

I am new to this forum. But I have a very important question to discuss with someone who can guide me regarding my inquiry. In my BPO, I prepare the salary structure and all other information. An employee in my company has a salary slab of Rs. 40,000 per month, and his CTC is Rs. 4,80,000 per annum. The employee is in a senior position. He has been on this slab for the last year and has borrowed a loan of Rs. 3,80,000 from the company in January 2007. From his salary, Rs. 30,000 is deducted every month as the loan installment. The company is not charging any interest on this loan.

Now the question is, can we charge him for Income Tax for this year? If yes, what rules need to be followed? Please advise. And on his salary slip, how can we show the deductions of Rs. 30,000 as the employee has been charged with 4 installments against the loan so far? If you can show me with any format or example, it will help me. If you have any more questions regarding this inquiry of mine, please email me at stephenmacnill@yahoo.co.in. Hope you will guide with a solution.

You need to charge the income tax. As an interest-free loan exceeding Rs. 20,000 is a perquisite, you need to follow the below calculation. The value of the perquisite would be calculated on a monthly basis as follows: Perquisite = SBI loan rates for similar loans on the maximum monthly outstanding balance - interest recovered from the employee.

There is an exception in your case. If the amount taken by your employee is for the treatment of specified diseases as mentioned in rule 3A of the Income Tax Rules, in that case, it's not a perquisite in the hands of the employee. Hope this has clarified your doubt.

Regards,
Jai

alcatraz.rajeev

Hi,

What Jai has said is correct. An interest-free loan attracts Perq if it extends 20k in a financial year. As per the statement, the employee took a loan in Jan 2007, and the monthly loan deduction is 30K (30K*12 = & balancing of 20K in Feb month). If this is the scenario, then there is no tax liability on this employee for the current financial year.

If the date is Jan 2008 and he has paid 4 installments, then the Perq is calculated from April 2008 till March 2009 on the reducing balance, i.e., minus the number of installments deducted (let us assume 3 paid last year). This will be 290,000.00 (this will be your opening balance). On this, the Perq should be calculated after deducting April installments (260,000*12.75% assuming it as a soft interest-free loan)/12). This has to be done on the reducing balance.

Loan Perq varies from loan to loan; hence, please check for what purpose the individual has availed the loan.

Regards,
Rajeev
SAP HR Consultant

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