Tax Year 2010
74
Tax Year 2010
Loan to Employee
i) Interest free loan is given to employee:
Where interest free loan is provided by employer to employee, interest calculated at the Bench Mark Rate shall be taxable. Benchmark rate for the tax year 2010 is 12%.
Illustration:
Mr. Ahsan has received following amounts from his employer during the tax year, 2010:
Basic salary 200,000
Interest free loan provided by employer 300,000
Qualifications pay 50,000
Required: Compute his total income for the tax year, 2010.
Solution:
Basic salary 200,000
Interest on interest free loan (300,000 @ 12%) 36,000
Qualifications pay 50,000
Total income 286,000
ii) Interest rate is less than Bench Mark Rate:
Where, actual rate of interest is less than bench mark rate, difference between bench mark rate and actual rate of interest shall be taxable.
Illustration:
Mr. Ahsan has received following amounts from his employer during the tax year 2010:
Basic salary 200,000
Special allowance 75,000
Loan received from employer @ 6% 300,000
Required: Compute his total income for the tax year 2010.
Solution:
Basic salary 200,000
Special allowance (Fully exempt) Nil
Interest on loan (12%–6%=6%) 300,000 @ 6%
(Difference between bench mark rate and actual rate) 18,000
Total income 218,000
iii) Interest rate is equal to Bench Mark Rate:
Where loan is given by employer to employee @ 12%. In other words, interest rate is equal to Bench Mark Rate; nothing shall be included as interest on loan in the total income of an employee.
Illustration:
Mr. Ahsan has received following amounts from his employer during the tax year, 2009:
Basic salary 200,000
Loan received from employer @ 12% 300,000
Efficiency honorarium 90,000
Required: Compute his total income for the tax year 2010.
Solution:
Basic salary 200,000
Interest on loan received from employer @ 12% Nil
Efficiency honorarium 90,000
Total income 290,000
iv) Interest rate is higher than Bench Mark Rate:
There is no tax treatment of such loan.
Illustration:
Mr. Ahsan has received following amounts from his employer during the tax year 2010:
Basic salary 200,000
Interest on loan received from employer @ 13% 300,000
Overseas allowance 100,000
Required: Compute his total income for the tax year 2010.
Solution:
Basic salary 200,000
Interest on loan received from employer @ 13% Nil
Overseas allowance 100,000
Total income 300,000
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Comments
Good hub. Thanks
Very informative! Thank you!
Informative hub. Thank you for sharing.
I am just glad that I don't have to pay out at the end of the year. I have Uncle Sam taken out more than he needed, so I won't have trouble to have to come up with the money:) Great info. Thanks!
Great Hub
Godslittlechild says:
2 months ago
There's alot of good information here!