Comments on: Why It’s Not Such a Good Idea to Take a Loan from Your Employer Even if It’s Interest Free?

By: Vinaya HS

Vinaya HS — Mon, 20 Oct 2008 05:11:23 +0000

That’s correct.

By: raj

raj — Fri, 17 Oct 2008 14:26:04 +0000

hi
thks for this, its quite clear now
but since it gets added to the taxable income,
u ll only pay tax on Rs. 6000 (say 600 @10% or 1200@20% depends on ur income)
which would be much lesser than the interest u pay
if u have taken the loan frm any commercial bank. right?
if i m wrong please clearify me
thks again.

By: Vinaya HS

Vinaya HS — Fri, 17 Oct 2008 03:50:42 +0000

Raj,

Suppose you take a loan of Rs 60,000 for one year from your employer. Your employer will deduct Rs 60,000/12 months = Rs 5,000 per month from your salary. The amount you have paid back to your employer at the end of one year is Rs 60,000, which means that you have paid zero interest. In effect, it’s a free loan.

Now, no loan in this world comes for free.

Therefore, a component called “notional interest” is added to your taxable income under a section called perquisites. Notional interest is the interest that you would have paid had you taken a loan from a commercial bank.

For simplicity, let us assume a notional rate of interest at 10% (simple interest). An amount = Rs 60,000 * 10% = Rs 6,000 gets added to your taxable income as a perquisite. You therefore have to pay tax on this “notional interest” component of Rs 6,000.

Hope this clears your confusion.

By: raj

raj — Thu, 16 Oct 2008 10:41:15 +0000

hi
can u explain explain exactly what does ur last point mean?
its quite confusing ….

By: Anoop

Anoop — Tue, 01 Jul 2008 10:22:52 +0000

@ your last point, you still have to pay income tax even if you are paying loans, but the tax paid will be much lesser, but the rest goes to loans asusual. I bel only way u can avoid tax in India is through real estate business..
It wont be a good idea though to borrow loans for education from your employer, if you don’t want to rejoin them or just waiting to get away from them for ever..

By: Anoop

Anoop — Tue, 01 Jul 2008 10:19:37 +0000

On the contrary, it aint gonna be a bad idea if ur company sponsors u for an MBA and retakes u back @ managerial positions, that way you dont have to indulge in the process of job hunt, you get a position boost and a higher pay hike as well, dont forget you still have to pay EMI’s if you are not borrowing loans from your employer as you still have to borrow loans from any local or international banks,unless & until you are son/daughter of vijay mallya or lakshmi mittal who can finance ur education without loans, the end result may be the same in both cases, as in the former it may add some value to the position in your company..