Income Tax Appellate Tribunal (ITAT) directs taxation of interest-free loans offered by employers

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With interest-free loans offered by employers to their employees without any tax being levied, the Income Tax Appellate Tribunal (ITAT) has given employers across the country a stern warning. The Income Tax Appellate Tribunal (ITAT) said that employers will now have to add interest-free loans offered by them to employers under the taxable income of the employee.

TDS-Interest-free loans
Tax should be levied on interest-free loans between employers and employees

Commenting on the matter, Puneet Gupta, director of people advisory services, Ernst and Young, said that as per the norms, the interest-free loan has to be treated as the taxable income of the individual and is subject to TDS (Tax deducted from source). He added by saying that an exemption to exclude the interest-free loan from being taxed is if the loan is below Rs.20,000 and has been disbursed by the employer to cover medical expenses of the employee – who might be suffering from a specific disease.

Gupta added that if the employer fails to deduct TDS from the total salary income of the employer (including the interest-free loan), the employer will face dire consequences at the hand of the Income Tax Appellate Tribunal. He said that the IT department can hand out a penalty ranging between 50% and 200% (of the unaccounted income) if the employer fails to include the interest-free loan under the taxable amount for the financial year.

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