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The Supreme Court, while affirming the tax regulation, underscored the distinctiveness of the benefits provided to bank employees, categorizing them as perquisites inseparably tied to their employment. This decision establishes that interest-free or concessional loans offered by banks to their employees are regarded as “fringe benefits” and are subject to taxation, aligning with income tax laws governing such perks. These “fringe benefits” denote supplementary advantages beyond an employee’s regular salary, typically offered by employers to incentivize or reward employment.

In essence, the interest-free or concessional loans provided by banks to their staff members are construed as fringe benefits, representing an additional advantage associated with the employee’s role within the bank.

The Supreme Court’s ruling implies that these fringe benefits are now liable to be taxed.

The court, in upholding the tax regulation, stressed the unique nature of these benefits for bank employees, recognizing them as inherent perquisites of their employment. Justices Sanjiv Khanna and Dipankar Datta, overseeing the case, clarified that these benefits are distinguishable from ‘profit in lieu of salary,’ as they constitute supplementary advantages linked to employment status.

This verdict comes amid a series of appeals lodged by various bank staff unions and officers’ associations contesting the tax rules.

The bench elucidated that the provision of interest-free or concessional loans by the employer constitutes a fringe benefit and perquisite, aligning with the conventional understanding and usage of these terms.

Addressing concerns regarding arbitrariness in linking the taxation of such benefits to the State Bank of India’s (SBI) interest rates, the court defended the decision.

It reasoned that using SBI’s interest rate as a benchmark ensures clarity and consistency, thereby averting unnecessary legal disputes.

Given SBI’s prominence as India’s largest bank, its interest rates wield significant influence over those of other banks, warranting its adoption as a benchmark.

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