Loan available at employer’s preferential rate for Covid treatment? Prepare to pay additional taxes
- The employer is likely to deduct Taxes Deducted at Source (TDS) on this income because it is part of the salary.
- However, if the employer fails to deduct the same amount, the employee is responsible for paying taxes on the same amount.
- However, the above tax rules will not be applicable if the total amount of the loan advanced by the employer does not exceed Rs 20,000
New Delhi: During the second wave of the Covid pandemic, many people reportedly received help from their employers to overcome the financial burden resulting from hospitalization for the treatment of family members affected by Covid and them themselves. While many companies have paid Covid-related processing fees for their employees and family members, other companies have helped their employees by giving them emergency loans at concessional or zero percent rates. ‘interest.
According to a recent government directive, if an employee receives financial assistance from their employer for covid treatment and any such medical emergency (hospital bills, drug costs, prescribed tests, etc.), these benefits will be taxed. -free for employees. However, if this financial assistance takes the form of a loan granted at a preferential rate, then the interest differential of this loan (compared to the market rate) will be treated as an indirect benefit in the hands of the employee. purposes of taxation.
The employer is likely to deduct Taxes Deducted at Source (TDS) on this income because it is part of the salary. However, if the employer fails to deduct the same amount, the employee is responsible for paying taxes on the same amount.
The tax on such income is calculated monthly on the outstanding loan on the last day of each month. “The prescribed interest rate would be the rate applied per year by the State Bank of India on the 1st day of the relevant financial year for loans of the same type and for the same purpose granted by it to the general public,” said Expert. in Taxation and Investment Balwant Jain. The amount of the balance is taxable in the hands of the employee as an indirect benefit.
For example, you received a loan of Rs 2 lakh from your employer at 2% annual interest for eight months. But SBI charges 9% interest on these loans. Then the amount of interest @ 7% (9% -2%) on Rs 2 lakh for 8 months will be treated as an indirect benefit and will be added to your salary income and will be taxed according to your taxation, Mr Jain said.
However, the above tax rules will not apply if the total amount of the loan advanced by the employer does not exceed Rs 20,000 or if the loan is extended by the employer for the medical treatment of diseases specified in approved hospitals in accordance with Rule 3A. income tax rules.