Tax Column

Tax Column


Jayesh Dadia
Chartered Accountant

I am presently working with an MNC. On my application, the employer has provided an interest-free loan to me. Is there any tax implication?

It is a very common practice, particularly by MNCs and big companies, to provide interest-free loans or concessional loans to employees or other members of their household. However, such an interestfree loan would attract Income Tax provisions and accordingly the value of the perquisite need to be determined so that tax can be levied as deemed perquisite. The value of the perquisite arising from an interest-free loan would be the interest payable at a prescribed interest rate.

This prescribed rate now would be the rate charged per annum by the State Bank of India as on the first day of the relevant financial year in respect of loan of the same type and for the same purpose advanced by it to the general public. Further, the perquisite value would be calculated on the basis of maximum outstanding monthly balance method. However, small loans of up to `20,000 in aggregate are exempt. Also, loans for medical treatment of disease specified in Rule 3A are also exempt provided the amount of loan for medical reimbursement is not reimbursed under any medical insurance scheme.

I have been appointed as Vice President (Operations) by a listed limited company located at Bangalore. As per my appointment letter, I will be provided residential accommodation by the employer. In case there is delay in providing the accommodation, I will be provided temporary furnished accommodation in a hotel. Could you let me know whether providing accommodation is a taxable perquisite and if yes what would be the value of the perquisite?

Where the accommodation provided to you is owned by the employer, located at Bangalore, the perquisite value would be 15 per cent of your salary. Where the accommodation so provided is taken on lease or rent by the employer, the perquisite value would be 15 per cent of the salary or the actual amount of lease rental payable by the employer, whichever is lower as reduced by any amount of rent paid by the employee. Salary includes basic salary, DA, bonus, commission, all other taxable allowances and any monetary payment which is chargeable to tax.

Further, if the accommodation is provided with furniture, then the value of the perquisite as determined above shall be increased by 10 per cent towards the cost of furniture, appliances, equipments or where furniture, appliances, equipments have been taken on hire, then the actual amount hire charges payable. In case if you are provided accommodation in a hotel, the value of the perquisite shall be 24 per cent of salary paid or payable in respect of the period during which accommodation is provided or actual charges paid or payable by the employer on such hotel accommodation as reduced by any amount of rent actually paid by employer. However, nothing is taxable if the hotel accommodation is provided for a period less than 15 days and is provided on employee’s transfer from one place to another place.

I am an individual owning agricultural land. As I am getting a good deal I have decided to sell the land. The net capital gain would be around `2 crore. Is capital gain on sale of agricultural land exempt? If not, then what are the options available for availing deduction from capital gain on sale of agricultural land?

Agricultural land is a capital asset within the definition of Section 2(14) of the Income Tax Act. Accordingly, any surplus on sale of capital asset is subject to capital gain tax. However, in case of agricultural land, its location is important. If the agricultural land is situated in an area having population of less than 10,000 or situated more than 2 km from the local limit of any municipality having less than 1,00,000 population or situated more than 6 km from the local limit of any municipality having population of less more than 10,00,000 or situated more than 8 km from the local limits of municipality, the capital gain on sale of agricultural land is exempt under explanation to Section 2(14) of the Income Tax Act.

Therefore, first you have to define the exact location of your land and if the land is situated within the exemption limit, the entire capital gain on sale of agricultural land would be exempted. If the land does not fall in any of the above locations, then you can avail benefit of provision of Section 54B of the Income Tax Act where if you reinvest your capital gain in another agricultural land within two years from the date of sale, your entire capital gain is exempt. If you invest part of the capital gain, you will be entitled to proportionate deduction.

Further, if you don’t have more than one residential house, the entire capital gain on sale of agricultural land can also be invested in a new residential house and accordingly capital gain is exempt under Section 54F of the Income Tax Act. If you don’t fall in any of the above situations and if the agricultural land is held by you for more than 24 months, the capital gain would be taxed as long-term capital gain at 20 per cent plus applicable surcharge. If the land is held for less than 24 months, the capital gain would be treated as short-term capital gain which is taxable at 30 per cent plus applicable surcharge. 

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