Tax Year 2010

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 7 comments

Godslittlechild profile image

Godslittlechild 7 years ago

There's alot of good information here!


keira7 profile image

keira7 7 years ago

Good hub. Thanks


thanglynn07 profile image

thanglynn07 7 years ago from Long Beach, CA

Very informative! Thank you!


H P Roychoudhury profile image

H P Roychoudhury 7 years ago from Guwahati, India

Informative hub. Thank you for sharing.


tim-tim profile image

tim-tim 7 years ago from Normal, Illinois

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!


gmodelchick7 profile image

gmodelchick7 7 years ago from Diva City

Great Hub


loveofnight profile image

loveofnight 6 years ago from Baltimore, Maryland

intetesting, thx 4 share

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