Interest-free or concessional loans provided to bank employees constitute 'perquisites' under the Income Tax Act, 1961, and are taxable as salary; employers have the legal option to deduct TDS on such non-monetary benefits in accordance with the Act and Rule 3(7)(i).

ORDER:

Heard Sri Vedula Srinivas, learned Senior Counsel appearing on behalf Smt.Vedula Chitralekha, learned counsel for the petitioners, Sri B.S.Prasad, learned Senior Counsel appearing on behalf of Sri Mujib Kumar Sadasivuni, learned counsel for the respondent No.1 and Sri A. Krishnam Raju, learned counsel appearing for the respondent No.2.

2. This writ petition is filed seeking to declare the Circular No.Per/2025-26/56, dated 15.10.2025 issued by the respondent No.1-Bank as illegal and arbitrary and to direct the respondent No.1-Bank not to affect any tax deduction at source of the income tax on the value of perquisites of the salaries paid to the Officers/employees of the Bank.

Contentions of the petitioners:

3. Learned Senior Counsel for the petitioners submits that the petitioner No.1-Association represents the Officers working in the respondent Bank, whereas the petitioner No.2-Union represents the staff working therein. The employees are paid salaries as per the prescribed pay scales and they are also provided with certain perquisites which are non-monetary in nature. From their salary, income tax will be deduced at source under Section 192(1) of the Income Tax Act, 1961 (for short ‘the Act,1961’) and it will be credited to the account of the Government of India by the Bank itself, whereas the tax on the value of perquisites is concerned, as per Sections 192(1A), 199(2) and 10(10CC) of the Act, 1961, it will be borne by the employer without deducting from the salary of the employees while paying it to the Government of India. The deduction of the TDS on the perquisites came into effect from the assessment year, 2002-2003 and all along the respondent Bank did not deduct the tax component of the value of the perquisites from the salaries of the employees.

4. Learned Senior Counsel for the petitioners further submits that earlier the petitioners have filed W.P.No.9026 of 2015 questioning the action of the respondent Bank in deducing Tax component of the value of perquisites from the salary of the officers/employees of the Bank and this Court has granted interim order directing the Bank not to deduct the tax on the value of perquisites. Thereafter, the respondent Bank has stopped showing the value of the perquisites on the total salary of the officers/employees, issued Form-16 and the officers/employees have filed returns under IT Act every year basing on the income shown in Form-16 and thus the tax component on the value of the perquisites is not deducted from the salary of the officers/employees by the Bank. He submits that the respondent No.2-Bank, which is the sponsor Bank of the respondent No.1-Bank issued Circular No.CD/P & HRSD PM/772024-25 dated 15.03.2025 stating that the Executive Committee of the Central Board of the Bank in its meeting dated 11.03.2025 has approved that the Bank will bear income tax on perquisite value of ‘Staffing Housing Loans’, Staff Car Loans’ and Staff Education Loans’ provided by the Bank for the eligible employees and also clarified that on all other interest free/concessional loans, the income tax has to be borne by the respective employees.

5. Learned Senior Counsel for the petitioners further submits that the respondent No.1-Bank has issued Circular No.Per/2025-25/80 dated 17.03.2025 clarifying that in view of the interim order passed in W.P.No.9026 of 2015, it was decided that income tax on perquisites will not be deducted at source during the financial year, 2024-25 subject to declaration/undertaking in Annexure-A submitted by the officer/employee and the petitioners have submitted a representation dated 18.03.2025 objecting to giv