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Sunday, Oct 06, 2002

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Valuing a loan perquisite

T. Banusekar

MY employer gives me a housing loan at 5 per cent interest and a supplementary loan at 15 per cent interest. If I avail of a housing loan of Rs 4 lakh and supplementary loan of Rs 1 lakh, how is the perquisite to be valued?

Under the new rules relating to valuation of perquisites, the value of a perquisite in respect of an interest-free or concessional loan provided to an employee or any member of his household is to be determined in the following manner:

Housing/conveyance loan at the rate of 10 per cent, and Other loans at the rate of 13 per cent This interest is a simple interest and is to be computed on the maximum outstanding monthly balance as reduced by the interest, if any, actually paid by him or any member of his household. The requirement to value the perquisite arises only when the amount of loans in the aggregate exceeds Rs 20,000.

In the instant case, there will not be any perquisite in respect of the supplementary loan. In respect of the housing loan, the value of perquisites will be taken at 5 per cent. Assuming that the loan is availed of for a full year, and that the monthly balance is constant, the value of perquisites would be Rs 20,000 — that is, Rs 4,00,000 x (10 per cent - 5 per cent).

Though the employer charges 15 per cent on the supplementary loan the difference of 2 per cent between the specified percentage, which is 13 per cent, and the 15 per cent interest charged by the employer cannot be reduced against the perquisite value of Rs 20,000 arrived at above.

Is the standard deduction to be computed on the basis of the salary before deductions under Chapter VI-A, or after such deductions?

C. Jacob


The standard deduction under section 16(i) in respect of salary income is dependent on the income under the head salaries computed after all deductions and exemptions available in respect of salary but before a deduction under Section 16(i).

The deductions under Chapter VI-A such as a deduction under section 80L will have no impact in computing the standard deduction. The quantum of standard deduction be available is shown in the Table.

Where an investment is made by an individual in the name of his spouse or children, which entitles him to a rebate u/s.88, to whom will the proceeds belong on maturity of the investments? Can the person who made the investment use the money on maturity as his own and offer the income from the investments made out of such maturity proceeds as his own income?

V. B. V. Ramesh

The proceeds would belong to the person in whose name the investment was made. Therefore, if the person making the investment treats the money as his own with the concurrence of the person for whose benefit it was invested, the same would be a gift, and the income out of such proceeds may have to be clubbed in the hands of the individual for whose benefit the investment was made if such individual is the spouse of the investor.

This clubbing provision will not be attracted if the person for whose benefit the investment was made is the child of the investor.

We are contractors engaged in construction of bridges. Our material suppliers raise two bills on us in two different names, one for the cost of materials and the other for transportation thereof from their quarries or storage yards. Should we deduct tax at source for payments on transport of materials? If so, are the transporters our contractors or sub-contractors?

Firoze Wadia

As it is understood, the payment to the transporters is made directly by the reader in respect of a bill raised by a transporter on the reader. It appears, therefore, that though the transporter is delivering the goods to the reader under instructions from the supplier, it is the reader who is the contractor actually engaging the transporter. This is so, as the reader is the person responsible for making payment to the contractor.

Therefore, on payments made to the transporter, the reader would have to deduct tax at source as a contractor engaging the transporter, and not as a sub-contractor.

In other words, the requirement to deduct tax at source would be 2 per cent (as increased by a surcharge) and not 1 per cent (as increased by a surcharge).

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