According to the law, if an employee gets a loan at a lower interest rate compared to the general public, the difference in the amount saved is treated as a “perquisite” and is subject to tax. For example, if a person pays ₹10,000 in interest on a loan but a bank employee only pays ₹2,000, the ₹8,000 saved by the employee would be taxed as part of their income. This means employees now have to pay tax on the amount they saved due to lower interest rates.
Why Is This Important for Bank Employees?
In many PSBs, employees have enjoyed the benefit of concessional loans, where they pay lower interest rates on loans compared to the general public. These loans have been an important part of their overall benefits package, especially since PSB employees do not receive as many perks as employees in private companies. For instance, private companies may offer shares, bonuses, or other benefits, but these are not typically given in PSBs.
For example, while the general public might pay 9% interest on a car loan, bank employees might only pay 5% interest. This savings used to be a major advantage, but with the new tax, the amount saved will now be added to the employee’s income and taxed.
What BOB said?
The bank offers concessional loans to its employees, including residential accommodation, staff loans at lower interest rates, and car facilities. According to the Income Tax Act of 1961, these benefits are considered taxable “perquisites” for the employees who receive them. However, to make it easier for employees, the bank covers the tax on these benefits, reducing the tax burden on employees. Employees will receive TDS credit for the additional tax liability created by these perquisites. As part of this initiative to reduce employees’ tax burden, the bank has advised all employees not to claim any exemption under section 10(10CC) while filing their income tax returns.
Why Bank of Baroda’s Decision Is Good News
Bank of Baroda has decided not to impose this tax on interest-free or concessional loans for its employees. This means BOB staff will continue to enjoy the full benefit of lower interest rates on loans without having to pay additional taxes on the money they save. Thanks to Bank of Baroda’s decision, its employees don’t have to worry about paying extra taxes on the savings they get from concessional loans. This is a big relief, especially since employees in some other PSBs have to pay tax on these savings.
How the Tax Works
To make this clearer, let’s take an example:
- A normal person might pay ₹10,000 in interest on a car loan.
- A bank employee might only pay ₹2,000 due to concessional interest rates.
The ₹8,000 difference is considered a “perquisite” and added to the employee’s taxable income. This means the employee will now have to pay tax on the ₹8,000 difference, which reduces the advantage of having a lower interest rate on loans.
Bigger Picture: Problems in the Banking Sector
Even though Bank of Baroda has made a positive decision, many other PSBs are following the trend of taxing concessional loans. This could lead to more dissatisfaction among employees, as they already face challenges like lower salaries compared to private bank employees and a lack of perks. Higher taxes could also impact employee morale and could even cause some workers to leave for private banks that offer better benefits.
Conclusion
Bank of Baroda’s decision to not deduct tax on interest-free loans is great news for its employees. It helps them keep the benefits of concessional loans without the added burden of taxes. Other banks in the sector could follow BOB’s example to better support their employees.
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