Borrowing for a home now more attractive

Employees of banks and corporates can heave a sigh of relief after the finance ministry yesterday notified that for perquisite valuation, interest rates for housing and other loans have been brought in line with the prevailing market rates.

The 2001 Budget had announced that the interest rates for housing loans would be 10 per cent and for other loans 13 per cent.

The finance ministry today said, "for perquisite valuation, rates of interest for housing loans etc, will be reduced to bring them in line with the prevailing market rates."

A notification in this regard would be issued next week and the same would come in force from the next financial year.

As par the current policy, the benefits arising out of the difference between the rate of interest fixed by the government and the concessional rate at which the loans are disbursed to employees of public sector undertakings (PSUs) and corporates are taxed.

In recent times, the interest rates on home loans have gone down to as low as 6 per cent, affecting the employees who had avail of the loans from their employers.

Take, for instance, a person in the highest tax slab, who has taken a housing loan of Rs 20 lakhs at a soft rate of 2 per cent.

If the benchmark and market interest rate is fixed at 7.5 per cent, the employee would then have to pay a lower tax of around Rs 15,750 per annum.

This relaxation would have a major impact on employees of banks, housing companies and big corporates, where soft housing loans are offered as a perquisite.

Interest rates on these loans range anywhere between 2 and 6 per cent.

Companies take bulk loans from housing finance agencies and then pass them on to their employees at an interest rate of around 5-6 per cent.

ICICI Bank charges, on an average, 3 per cent for loans to its employees while for Housing Development Finance Corporation it is at around 2 per cent.