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How Perquisites Are Taxed for Bank Employees? | Section 17 IT Act Explained
#perquisites #section17 of the #incometaxact1961 #perquisitetax ‪@InsightfulDhull‬
Section 17 of the Income Tax Act, 1961, defines key components of an employee's income:
✅ Salary
✅ Perquisites
✅ Profits in lieu of salary
Under Section 17(2)(viii), the "value of any fringe benefit or amenity as may be prescribed" is considered taxable income. The Central Board of Direct Taxes (CBDT) introduced Rule 3(7)(i) to govern interest-free or concessional loans provided by employers.

📝 #Taxability of #interestfreeloan or #ConcessionalLoans

As per Rule 3(7)(i), the difference between the market interest rate and the interest charged by the employer is considered a taxable perquisite under the head "Salary."
Formula for Calculation:
Taxable Value of Perquisite = Outstanding Loan Balance (as of the last day of each month) × SBI Interest Rate (as of April 1 of the financial year) − Interest Charged by Employer
#KeyComponents:
Outstanding Balance: The unpaid loan amount on the last day of each month.
SBI Interest Rate: The rate charged by the #statebankofindia (SBI) on similar loans on April 1 of the relevant financial year.
Interest Charged by Employer: If the employer charges any interest, it is subtracted from the perquisite value.
Supreme Court Ruling
The #AllIndiaBankOfficers'Confederation (#AIBOC) challenged the constitutionality of this rule.
#Arguments:
Nature of Loans:
Employees argued that these concessional loans were part of their employment terms and should not be treated as taxable income.
Violation of #article14 (Equality before Law):
They contended that the rule was arbitrary, as it treated SBI’s Prime Lending Rate (#PLR) as the benchmark, instead of considering the rate of interest (ROI) charged by individual banks.
#Verdict:
The Court upheld:
The constitutional validity of Section 17(2)(viii) and Rule 3(7)(i).
It affirmed that concessional loans constitute taxable perquisites under the Income Tax Act.

#Implications
For Bank Employees:
Increased Tax Burden:
The taxable value of concessional loans is now included in their income, leading to higher tax liabilities.
#NegativeSalaries:
In some cases, particularly for employees in lower pay scales, the tax liability due to the perquisite exceeds their net salary, resulting in negative salaries after deductions like PF and TDS.
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