Tax on Perquisites is a burning topic in India right now. Perquisites, commonly known as “perks,” are additional benefits provided to employees beyond their regular salary. In the banking sector, one such perk includes low-interest or interest-free loans. For example, while the general public may receive a car loan at 9% interest, bank employees can avail the same loan at a reduced rate of 5.5%.
This discounted interest rate is considered a financial benefit, similar to extra income. However, a recent court ruling has mandated banks to deduct tax on these perquisites, treating them as taxable income. As a result, many employees experienced unexpected salary deductions, with some even facing negative salaries in February 2025 due to the tax adjustments.
SBI has issued new guidelines regarding the tax treatment of interest-free and concessional staff loans following a Supreme Court judgment. In response to a long-standing legal dispute, the Hon’ble Supreme Court dismissed Civil Appeal 7708/2014 and related petitions on May 7, 2024. This ruling mandates that the value of interest-free or concessional loans provided to employees be treated as a taxable perquisite under Section 17(2)(viii) of the Income Tax Act, 1961.
The Executive Committee of the Central Board, in its meeting on March 11, 2025, has approved the following measures for FY 2024-25:
Bank to Bear Tax for Specific Loans: The bank will cover the income tax on the perquisite value of Staff Housing Loans, Staff Car Loans, and Staff Education Loans.
Employees to Bear Tax on Other Loans: For all other interest-free or concessional loans, the tax liability will be borne by the respective employees.
Applicability:
- Employees in service or drawing a pension as of March 31, 2025, will be covered under this provision.
- Employees joining the bank on or after April 1, 2025, will not be covered.
- Existing employees will remain eligible for this benefit upon retirement.
These directives follow previous interim protections granted by the Madras High Court in 2010, which had restrained tax deductions on such perquisites. However, with the Supreme Court’s dismissal of the appeal, the bank is now required to comply with the revised taxation norms.
Union Bank has announced to bear 100% Tax on Perquisites. Canara Bank has also announced to bear 100% Tax on Perquisites. Punjab National Bank has announced to bear 50% Tax on Perquisites.
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