Tax implications if you opt for concessional loan amid pandemic

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To overcome the financial burden amid the pandemic, many people would have requested help from their employers to meet medical expenses. While certain companies came forward to pay for Covid related treatment for their employees, others compensated with emergency loans. Both these have a distinct impact on the tax structure.

As per recent guidelines from the Centre, if the employer offers financial assistance to pay for covid treatment and any such medical mergency for that matter (hospital bills, medicine costs, prescribed tests, etc.), it is tax-free for you (employee). Meanwhile, if this financial assistance is in the form of a loan given at a concessional rate, benefits from such a lower interest rate will be considered as perquisite in the hand of the employee.

“Concessional loans may be granted by an employer to its employee or any member of his household for any purpose at low or nil rate of interest. In case, such loan is availed by an employee then, the difference between per annum interest charged by SBI on similar category loans as on the first day of the previous year and interest recovered by the employer is chargeable to tax as perquisite in the hands of the employee,” said Shailesh Kumar, Partner, Nangia & Co. Llp.

Employees may also avail such loans to fund kid’s education or marriage apart from a medical emergency. This largely depends on the company’s policies. Some organisations may provide these loans at zero or much lower-interest rates. The above difference in interest, which is to be treated as perquisite in the hands of the employee, is calculated on the monthly outstanding balance of the loan advanced to the employee.

However, there are exceptions to the above-stated rule. If the loan amount is up to Rs 20,000 in aggregate or granted for medical treatment of particular diseases from approved hospitals, it remains outside the purview of taxation.

“None of the above rules shall apply if the aggregate amount of loan advanced by the employer does not exceed Rs 20,000 or if such loan is made available by the employer for the medical treatment for specified diseases in approved hospitals as laid out in Rule 3A of the Income-tax Rules,” Kumar clarified.

Hence, if you’ve taken such a loan at concessional rate or planning to take one, keep the taxation rules in mind. Otherwise, you made have to bear certain unexpected expenses due to sheer ignorance.