Tax treatment of interest-free loans, subsidised interest loans, waivers on the principal sum, etc. given to employees.

Tax Treatment of Benefits Relating to Loans (Summary Table)

NatureTaxable/Not taxable


Interest benefits arising from interest-free or subsidised interest loans, e.g. housing loans, vehicle loans, computer loans and personal loans.


  1. Employer provides the loan directly to the employee

Not taxable if the scheme is available to all employees.

Employees must not have substantial shareholdings, or control or influence over the company by virtue of their shareholdings or otherwise.

See Computing Interest Benefits (below).

  1. Employer or employee obtains a loan from a financial institution and employer pays the interest payment




Interest benefits on loans to company directors


See Loans to Company Directors (below).


Waiver of principal sum

Amount waived is taxable

Loans to Company Directors

Benefits directors derive from loans are taxable. The Income Tax Act regards company directors as employees, the benefits from interest-free / subsidised loans are taxable as employment benefits.

Computing Interest Benefits

The value of interest benefits is computed based on prime interest rate.

For simplicity, IRAS may accept computation based on the amount of loan outstanding as at 31 December of each year multiplied by the average prime lending rate for that year.

If the loan were taken for less than one calendar year, the interest benefits would be computed according to the number of months in that year for which the loans remain outstanding.

Example 1: Interest Benefit Based on Prime Lending Rate

A company director has been provided with an interest-free loan of $100,000 from January 2019 to October 2021, the amount of interest benefit for each Year of Assessment (YA) would be as follows:

Year of Assessment (YA)Outstanding LoanAverage Prime Lending Rate (%)Amount of Interest Benefit



$100,000 x 5.25% = $5,250




$100,000 x 5.25% = $5,250




$100,000 x 5.25% x 10/12 = $4,375

Average Prime Lending Rate

Information on prime lending rates is available on the MAS website. For your convenience, IRAS has computed the average prime lending rates based on the information found on the MAS website as follows:

YearAverage Prime Lending Rate (%)