The Hindu Business Line : Perquisites/rebates: Taxation of employer benefits

If the employer enters into an agreement with a landlord for taking on lease a house property which is to be leased to an employee, and where advance is given to the landlord, will the same be treated as a perquisite?

If a plot is purchased with the help of a loan and on which it is proposed to construct a house, will the interest qualify for deduction under Section 24 and the principal qualify for rebate under Section 88? If the answer is in the negative, will the interest be taken as pre construction period interest and be allowed after the construction of the house on the plot? Will the registration charges of the plot qualify for rebate under Section 88?

In a case where watches are purchased in large numbers by a company with a request to the supplier to have the company's name and logo printed on the same, will tax have to be deducted u/s.194C?

M. Ravikannan

Rule 3 of the Income Tax Rules, 1962 prescribes that interest free or concessional loan provided to an employee or any member of his household will be treated as a perquisite and the perquisite value is to be taken as:

Housing and conveyance loans — 10 per cent per annum.

Other loans — 13 per cent per annum.

These percentages are to be reduced by the amount of interest charged by the employer from the employee. A loan will also include an advance and, therefore, a perquisite value will arise even on a festival advance. It may be noted that the above interests are to be computed on the basis of the maximum outstanding monthly balance. It may also be noted that no interest will be treated as a perquisite if the aggregate of loans does not exceed Rs 20,000, or where the loan is made available in respect of medical treatment for specified diseases.

From the query it appears that the leased accommodation is taken by the employer. In such a case, there is no loan given to the employee and, therefore, the question of valuing a perquisite in respect of the advance given to the landlord will not arise. It does not make any difference that the property is then given for use by the employees. This question can arise only if the employee is taking an accommodation on lease for himself, and where the employer pays the advance to the landlord at the request of the employee which otherwise would have been the obligation of the employee.

It has already been clarified through this column that interest on loan taken for the purchase of a plot on which a house is to be constructed should also qualify for the deduction under Section 24, and further that the principal repayment of such a loan should also qualify for the rebate under Section 88.

This view has been expressed for the reason that it would only be fair that this view be taken given that the objective of purchase of the plot is to build a house, and further a house cannot normally be purchased or bought or constructed without a plot. In this context, reference had also been made to Circular No. 667 dated 18.10.1993 of the Board rendered in the context of Sections 54 and 54F, which are exemptions available in computing capital gains. It may be clarified that no deduction or rebate can be claimed until such time as the construction is complete.

The interest up to the date of construction will, however, qualify as pre-construction period interest which can be claimed as a deduction in five equal instalments commencing from the year in which the construction of the house is completed but within the overall ceiling limits. Based on the same analogy, the registration charges for purchase of the plot will also qualify for rebate under Section 88.

The requirement by the company to print on the watches the name and logo of the company will be a contract for a work and therefore section 194C would stand attracted requiring deduction of tax at source. If the purchase of the watches and the printing order are contracts distinct from each other, there will be no requirement for deducting tax at source as this will be the purchase of goods or commodities which is outside the scope of tax deduction.

If, however, a consolidated contract has been entered into, whether oral or written, for the purchase and printing, tax will have to be deducted at source on the entire payment/credit.

It may be noted that the requirement to deduct tax at source under Section 194C arises only when the payment/credit exceeds a sum of Rs 20,000 per contract.

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