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Taxation on Staff Benefits: Bank of Baroda to Bear the Cost, Other PSBs Leave Bankers in Uncertainty
Bank employees face uncertainty over retrospective tax on concessional loans after a Supreme Court ruling. While some banks step in to bear the cost, others leave employees to shoulder the burden.
Author: Abhivad
Published: December 18, 2024
Public Sector Bank (PSB) employees are raising concerns about retrospective tax on perquisites arising from concessional loans, following a Supreme Court ruling in May 2024. Banks remain divided on handling the tax burden, leaving employees in uncertainty.
Read More: Interest-Free Loans to PSB Employees Now Taxable; SC Ruling Rattles Bankers
Banks’ Varied Responses
Sources confirm that Bank of Baroda (BOB) has decided to bear the tax liability on concessional loans for its employees. The bank will pay the tax directly, covering loans for housing, vehicles, and other purposes, ensuring that employees retain the benefits of lower interest rates. Employees will receive Tax Deducted at Source (TDS) credits, but they must avoid claiming exemptions under Section 10(10CC). However, an official communication on the matter is yet to come.
In contrast, Punjab National Bank (PNB) and Union Bank of India have communicated to employees that they must bear the cost themselves. Union Bank of India has announced that tax deductions will begin next month, with employees required to pay tax retrospectively from April 2024.
State Bank of India (SBI), meanwhile, is still assessing the situation. No official decision has been announced, but sources suggest that the bank is considering absorbing the cost. But, Financial Express has reported that both SBI and BOB have taken the decision to bear the additional expenses.
Supreme Court Ruling and Its Implications
The retrospective tax stems from a Supreme Court verdict on 07 May 2024, which upheld the taxability of interest-free or concessional loans provided to bank employees. The decision followed a prolonged legal battle initiated in 2007 by the All India Bank Officers Confederation (AIBOC). The case concluded with the Supreme Court ruling that such benefits qualify as taxable perquisites.
Banks typically offer loans to employees at lower interest rates compared to regular customers. For instance, a customer might receive a housing loan at 8.50% or 9%, while employees get the same at around 6%. The Prime Lending Rate (PLR) of SBI serves as the benchmark for calculating the tax on these loans.
Call for Uniform Measures
As some banks remain undecided, employees have taken to social media to demand clarity. Many argue that larger banks with robust profits should absorb the tax burden, while the government should step in to assist smaller banks and their employees.
With banks adopting varied approaches, public sector bank employees await uniform measures to address the tax burden on concessional loans. The banking sector’s response in the coming weeks will likely set a precedent for handling similar issues in the future.