EXPLAINED: Big Blow To Bank Employees! SC Says Interest-Free Loans Availed By Bank Staff Taxable | Personal Finance News


New Delhi: The recent Supreme Court ruling on bank employees getting interest-free or concessional loans is set to deal a major blow to the latter. SC in its ruling has said that such loans given by banks to their employees at zero interest or concessional loans will be subject to taxation as they are being categorized as “fringe benefits” or “amenities”.

A bench of Justices Sanjiv Khanna and Dipankar Datta on May 7, 2024 said the benefit enjoyed by bank employees from interest-free loans or loans at a concessional rate is a unique benefit/advantage enjoyed by them. It is in the nature of a ‘perquisite’, and hence is liable to taxation.

“Rule 3(7)(i) posits SBI’s rate of interest, that is the PLR, as the benchmark to determine the value of benefit to the assessee in comparison to the rate of interest charged by other individual banks. The fixation of SBI’s rate of interest as the benchmark is neither an arbitrary nor unequal exercise of power. The rule-making authority has not treated unequal as equals. The benefit enjoyed by bank employees from interest-free loans or loans at a concessional rate is a unique benefit/advantage enjoyed by them. It is in the nature of a ‘perquisite’, and hence is liable to taxation, it said”

The ruling said “Rule 3(7)(i) of the Rules stipulates that 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 the Prime Lending Rate of the State Bank of India.”

How Are Fringe Benefit And Perquisite Being Defined?

‘Fringe benefit’ is defined as any of the various benefits received from an employer apart from salary, such as insurance, pension, vacation, etc.

Perquisite has been defined as a fringe benefit attached to the post held by the employee unlike ‘profit in lieu of salary’, which is a reward or recompense for past or future service. 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.



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