Employees of banks, insurance companies and corporates who are used to being pampered with concessional housing, vehicle loans and concessional tariffs at holiday homes had better watch out.
Once the draft rules for valuation of perquisites issued by the Central Board of Direct Taxes (CBDT) are notified and made applicable, the employees will end up paying tax on the difference between the concessional interest charged and the prescribed rates, or on the difference between the tariff paid and tariff reimbursed by the employer to the holiday home.
For the employees of utilities who enjoy free power supply, gas, water and unlimited telephone calls (here MTNL, BSNL & VSNL employees beware!), the golden days might soon be over as the CBDT draft rules prescribe that the value of these perquisites would be the actual cost incurred to the employer.
Interest-free/ concessional loans in excess of Rs 20,000 will now carry a cost. If an employee avails of housing loan from his/her employer at say 5 per cent interest, the actual cost to the employee will be 6.5 per cent as the draft rules set the prescribed interest rate for housing loans at 10 per cent.
The difference between the prescribed rate (10 per cent) and the interest rate payable by the employee (5 per cent in this case) will be taxable at 30 per cent.
According to Sanjay Grover, partner, Andersen, the global consultant, the increased cost of the housing loans availed of from the employer still compares favourably with the home loans given by the housing finance companies (at an average interest of 12 per cent).
However, employees of the central government are better off among all the categories of employees, be it in the public sector or the private sector, as far as availing of housing loans are concerned as they have the benefit of first servicing the principal amount over say around 15 years while the servicing of interest that is accrued follows only later.
The CBDT has prescribed the interest rate for car/scooter at 12 per cent, for other loans at 15 per cent and for tools of profession at 6 per cent.
A senior official with a leading financial institution said the prescription of the rates of interest by the CBDT for loans given to the employees by the employers was arbitrary and flies in the face of the concept of 'cost to the employer'. He questioned as to how the cost of funds for an employer could be deemed as different just because the loans were being given for different purposes. He pointed out that the prescribed rates of interest, especially that for other loans (at 15 per cent), were out of line (very high) in the prevailing falling interest rate scenario.
The value of a rent free unfurnished accommodation ('RFA') for a non-government employee, as per the draft rules, is to be computed at 10 per cent of salary. Thus, even when then rent paid is more than 10 per cent salary, the value of the benefit will be restricted to 10 per cent of the salary.
As per the draft CBDT rules, if a driver is being paid a salary of Rs 3,000 per month then this amount would be taxable as a perquisite at the hands of the employee unlike the extant rules according to which the driver's salary is taxed at the standard rate of Rs 300 per month regardless of the salary paid to the driver. The salary paid by an employee to his/her sweeper or gardener would be taxable on an actual basis as against the present flat rate of Rs 120 per month.
The draft CBDT rules on valuation of perquisites at cost to the company were issued following the union finance minister's budget speech in February 2001. In the speech the finance minister proposed that the value of perquisites, benefits or amenities shall be determined on the basis of their cost to the employer.
