The income-tax department levies a tax on the interest subsidy extended by companies to their employees on different types of loans. At present, it considers 10 per cent as the standard interest rate on housing and car loans.
If an employee in the highest tax bracket gets a home or car loan at a rate lower than 10 per cent, the department adds the difference to his income, and taxes it at 30 per cent.
However, if the difference is less than Rs 20,000, the department spares him from any tax. For loans other than car and housing, the department considers 13 per cent as the standard interest rate.
The move to revise the interest rates has been prompted by representations made by several employee groups to the ministry, pointing out that interest rates have softened considerably during the last couple of years.
As a result, the difference between these rates and the ones offered by companies to their employees has increased. The value of taxable perks, too, have shot up as a result.
In the Budget for 2002-03, the finance ministry had introduced taxation of perks on a large number of items, including company-paid credit cards, club membership, travel allowances and soft loans for acquiring property.
So far, for most issues relating to taxation of perks, the ministry has relied on issuing notifications, but there is a possibility that to bring order into the emerging field, it may opt for consolidating the rules under the Finance Act in the Budget for 2004-05.
The relief is likely to come through next year. Finance ministry sources said since companies had already filed their tax returns for the last assessment year, they could afford to await for the next Budget.
