Example of Valuation of Concessional Loan Interest
Valuation of Concessional Loan Interest Sections and Explanation.
Example:
Details of Mr X. the employee for the Financial Year
2012-13 are as follows:
Loan given by employee Rs. 5,00,000
Interest Paid Nil
SBI Rate as on 01.04.2012 12%
SBI Rate as on 01.04.2013 13.5%
Calculate the value of Interest taxable under the head
salary under the lights of rule 3(7)(i) of The Income Tax Act.
Solution:
Interest as per rule 3(7)(i)(Note 1)
Rs.60,000
Less: Interest actually paid at
concessional rate/ NIL
Nil
interest paid .
Taxable Amount under the Head
Salaries Rs.60,000
Note 1:
Interest
as per rule 3(7)(i) = 5,00,000 * 12% =
Rs. 60,000.
Here
the rate of Interest on the First day of previous Year is to be considered so
Rate as on 01.04.2012 i.e. 13.5% is to be ignored.
=============================================
Valuation of Concessional Loan Interest Sections and Explanation.
Extension of example:
-
Interest paid by Mr. X to the employer on all the loans @ 7%
-
Mr. X. has repaid Rs. 3,00,000 as on 01.09.2012
-
Mr. X received a car Loan from his employer Rs. 1,50,000 as on
05.12.2012
-
SBI Interest Rate on Car Loan as on 01.04.2012 is 11.5%
Calculate the value of Interest taxable under the head
salary under the lights of rule 3(7)(i) of The Income Tax Act.
Solution:
Interest as per rule 3(7)(i)(Note 1) Rs. 44,750
Less: Interest actually paid at
concessional rate/ Rs. 26,250
Nil
interest paid (Note 2)
.
Taxable Amount under the Head
Salaries Rs.18,500
Note 1: Interest as per rule 3(7)(i) :
Months
|
Maximum O/s Balance
|
Calculation
|
Interest
|
|
Personal
Loan
|
Car Loan
|
|||
April
to August
|
500000
|
-
|
=
500000*12%*5Months/12
|
25000
|
September
(500000-200000)
|
200000
|
-
|
=
200000*12%*1Month/12
|
2000
|
October
to November
|
200000
|
-
|
=
200000*12%*2Months/12
|
4000
|
December
to March
|
200000
|
150000
|
=[200000*12%*4Months/12]+
[150000*11.5%*4Months/12]=8000+5750
|
13750
|
Total
|
44750
|
|||
Note 2: Interest actually paid at concessional rate/ Nil
interest paid: Paid @ 7% on all loans
Months
|
Maximum O/s Balance
|
Calculation
|
Interest
|
|
Personal
Loan
|
Car Loan
|
|||
April
to August
|
500000
|
-
|
=
500000*7%*5Months/12
|
14583
|
September
(500000-200000)
|
200000
|
-
|
=
200000*7%*1Month/12
|
1167
|
October
to November
|
200000
|
-
|
=
200000*7%*2Months/12
|
2333
|
December
to March
|
200000
|
150000
|
=[200000*7%*4Months/12]+
[150000*7%*4Months/12]=4667+3500
|
8167
|
Total
|
26250
|
|||
=========================================
Valuation of Concessional Loan Interest Sections and Explanation.
Exceptions to Loans considered in Rule
3(7)(i):
-
When
the employee has taken a loan from employee for medical expenses for specified
diseases as per rule 3A, then even if the employee does not pay any Interest on
such loan, It is not considered as perquisite in the hands of employees and
such interest not paid is not taxable as in the above case
-
Specified
diseases as per Rule 3A(2) are:
a)
cancer;
b)
tuberculosis;
c)
acquired immunity deficiency syndrome;
d)
disease or ailment of the heart, blood, lymph glands, bone marrow,
respiratory system, central nervous system, urinary system, liver, gall
bladder, digestive system, endocrine glands or the skin, requiring surgical
operation;
e)
ailment or disease of the eye, ear, nose or throat, requiring
surgical operation;
f)
fracture in any part of the skeletal system or dislocation of
vertebrae requiring surgical operation or orthopaedic treatment;
g)
gynaecological or obstetric ailment or disease requiring surgical
operation, caesarean operation or laperoscopic intervention;
h)
ailment or disease of the organs mentioned at (d), requiring medical treatment in a
hospital for at least three continuous days;
i)
gynaecological or obstetric ailment or disease requiring medical
treatment in a hospital for at least three continuous days;
j)
burn injuries requiring medical treatment in a hospital for at
least three continuous days;
k)
mental disorder - neurotic or psychotic - requiring medical
treatment in a hospital for at least three continuous days;
l)
drug addiction requiring medical treatment in a hospital for at
least seven continuous days;
m)
anaphylectic shocks including insulin shocks, drug reactions and
other allergic manifestations requiring medical treatment in a hospital for at
least three continuous days.
-
In case where, the Loan is taken by an employee for the medical
expenses and if the amount is less than Rs. 20,000, then it is exempt from tax
on Interest which is the balance of the interest at SBI Rate and the Interest
actually paid by the employee.
-
When the employee has received loan from employer for medical
treatment for specified disease as per rule 3A, and if the employee receives
any reimbursement is made by the insurance company than such amount will not be
allowed for exemption. Let us understand the same with an example:
==================================================
Valuation of Concessional Loan Interest Sections and Explanation.
Example:
Details of Mr X. the employee for the Financial Year
2012-13 are as follows:
Loan given by employee for specified disease as per
Rule 3A Rs. 2,00,000
Loan given by employee for Medical Treatment Rs. 22,000
Interest Paid Nil
SBI Rate as on 01.04.2012
12%
Reimbursement by Insurance Company for specified
Disease on 01.12.2012 Rs.
80,000
Repayment of Loan by employee for Medical Treatment on
01.02.2012 Rs. 10,000
Calculate the value of Interest taxable under the head
salary under the lights of rule 3(7)(i) of The Income Tax Act.
Solution:
Interest as per rule 3(7)(i)(Note 1) Rs. 4,650
Less: Interest actually paid at
concessional rate/ NIL
Nil
interest paid
.
Taxable Amount under the Head
Salaries Rs.4,650
Note 1: Interest as per rule 3(7)(i) :
Months
|
Maximum O/s Balance
|
Calculation
|
Interest
|
|
Specified
Disease
|
Unspecified
Disease
|
|||
April
to November
|
NIL
|
22000
|
=
NIL + 22000*12%*8Months/12
|
1760
|
December
to January
|
80000
|
22000
|
=
[80000*12%*2Months/12]+
[22000*12%*2Months/12]=1600+440
|
2040
|
February
|
80000
|
12000
(22000-10000)
|
=
[80000*12%*1Month/12]+
[12000*12%*1Month/12]=800+120
|
920
|
March
|
80000
|
12000
|
=
[80000*12%*1Month/12]+
[12000*12%*1Month/12]=800+120
|
920
|
Total
|
4650
|
|||
Explanation:
-
Rs 2,00,000 Loan given for specified disease
as per Rule 3A is exempted but any reimbursement by the insurance company is
not allowed as exempt so Interest on Rs. 80,000 received as reimbursement from
insurance company is taxable.
-
It is said in the Act that if the medical Loan
taken by an employee for unspecified disease is less than Rs.20000 than
interest on such loan is not taxable as per Rule 3(7)(i).
- In the above example, Maximum balance at the end of the month February of Loan for unspecified disease becomes Rs. 12000, which is less than Rs.20,000, but still Interest on same is taxable because the original Loan amount is more than Rs. 20,000 i.e. Rs. 22,000.
Valuation of Concessional Loan Interest Sections and Explanation.
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