Tax on Perquisites: Relief for Employees of Some PSBs, Others Await Clarity

Public Sector Bank (PSB) employees have been facing uncertainty over the taxation of perquisites following the Supreme Court's ruling on staff loan benefits. While some banks have taken steps to absorb the financial burden, many employees remain concerned about additional deductions from their salaries.

(SBI’s circular stating the bank will bear the tax on perquisites.)

Banks Announce Measures to Support Employees

The State Bank of India (SBI), Bank of Baroda (BOB), and Union Bank of India have officially announced that they will bear the full cost of the tax on perquisites for their employees. This decision has provided significant relief to thousands of bank employees who were worried about the additional financial burden following the court's verdict.

Meanwhile, Punjab National Bank (PNB) has taken a different approach by agreeing to absorb 50% of the perquisite tax. While this offers some respite, employees still have to bear the remaining half of the liability.

(Union Bank’s circular on bearing the expense of tax on perquisites.) 

Background: Supreme Court Verdict and Its Implications

The Supreme Court’s decision in May 2024 upheld the taxation of interest-free or concessional loans provided by banks to their employees. Under this ruling, such benefits are now considered taxable perquisites, with the Prime Lending Rate (PLR) of SBI serving as the benchmark for tax calculation. This means employees availing of staff loans at concessional rates would have to pay additional taxes on the difference between the market rate and the concessional rate offered by their respective banks.

This ruling led to strong opposition from banking unions, who argued that the additional tax burden would negate the benefits employees receive through concessional loans. Unions urged bank managements to absorb the cost, similar to other sectors where employees receive non-taxable perks such as free travel and accommodation.

Concerns Among Employees of Other PSBs

While employees of SBI, BOB, and Union Bank have received clarity and relief, those in other PSBs remain uncertain. Several banks have yet to take a final decision, leaving their employees anxious about the financial impact. Many employees have taken to social media to express their concerns, urging their respective banks to follow the example set by SBI and BOB.

In UCO Bank, agitation has already begun, led by the All India Federation of UCO Bank Officers (AIFUCBO). The federation has demanded that the bank absorb the perquisite tax liability, citing the institution’s strong financial performance. Employees argue that absorbing this cost would be a fair measure, given the bank’s profitability and the precedent set by other PSBs.

Unions Continue to Push for Relief Measures

Banking unions continue to engage with management across various PSBs to advocate for the absorption of the tax burden. They argue that larger banks with stable financials should support their employees, while smaller banks should seek government intervention for relief measures.

As the situation unfolds, employees of several PSBs remain hopeful that their management will take a decision in their favour, following the precedent set by the major PSBs.