Supreme Court Ruling on Taxation of Benefits from Low-Interest Loans

Supreme Court Ruling on Taxation of Benefits from Low-Interest Loans

New Delhi. In a blow to public sector bank employees, the Supreme Court affirmed the legality of Section 17(2)(viii) of the Income Tax Act and 3(7)(i) of the IT Rules, ruling that the money saved through availing interest-free or low-interest loans from their employer would be subject to income tax now.

According to the sources, the decision was announced by a bench of Justices Sanjiv Khanna and Dipankar Datta in response to petitions filed by the All India Bank Officers' Confederation and several appeals from staff unions and officers' associations of different banks on Tuesday. The petitioners had contested the legality of the IT Act's provisions and its regulations, which permit the imposition of taxes on savings obtained through interest-free or low-interest loans made to bank employees.

As per the rule, the bank employee who avails a zero-interest or concessional loan, the amount he saves annually as compared to the amount paid by an ordinary person by taking a loan of the same amount from State Bank of India that attracts a rate of interest as per market, would not be liable to pay income tax.

The bench also highlighted that concessional loans are among the additional advantages or benefits given because of employment, which otherwise will not be available.


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