State Bank of India (SBI) has published the reference lending rates for the purpose of loan perquisite calculation for the financial year 2016-17. You can find the SBI rates as on 01-Apr-2016 here.
SBI provides reference rates for different types of loan (home loan, car loan etc.) and employers should use the correct reference rate for the purpose of perquisite calculation. For example, if a car loan is provided to an employee, the reference rate for perquisite calculation shall be the SBI car loan rate.
Reference rate for personal loan provided to employees
SBI’s loan product called “Xpress Credit” corresponds to personal loans provided by employers to their employees. There are 3 categories of reference rates under this loan – Full Check-off, Partial Check-off, and No Check-off. The term Check-off, in this context, refers to the system whereby the employer regularly deducts a portion of an employee’s salary and makes payments towards loan repayment. If the loan repayment from an employee happens entirely by way of salary deduction (and not by the employee paying by cheque/cash outside of salary deduction), the Full Check-off rates should be considered for perquisite calculation.
For 2016-17, SBI has published a range of rates for the 3 categories (Full, Partial, and No Check-off). It is not clear how employers should interpret the range provided. For example, the reference rate range for the “Full Check-off” category is as follows:
Full Check-off: 330 bps – 380 bps above Base Rate i.e., 12.60 % p.a. – 13.10% p.a.
If an employer provides a personal loan at 0% interest rate and the loan deduction happens entirely by way of deduction from salary, should the employer consider 12.60% or 13.10% as the reference rate? It would be useful if SBI or the Income Tax Department provides a clarification on how employers should interpret the range of reference loan rates published by SBI.
In addition to offering Xpress Credit, SBI offers a number of other personal loan products such as SBI Saral – the interest rates for these products are different from those of Xpress Credit as of 01-Apr-2016. It may be noted that SBI has chosen Xpress Credit alone as the reference loan product for perquisite calculation in the personal loan segment.
You can read about how to calculate perquisite value on loan provided to employees in this blog post.