If you're an employee of a financial intermediary like Housing Development Finance Corporation or ICICI Bank or even of a big corporate house that offers you concessional home loans, you are actually not getting any concession.

For all you know, you may be even paying a little more than the market price of the loan.

This is an outcome of the relentless fall in interest rates on housing loans and personal loans and the government's policy of treating the interest rate benefit enjoyed by employees of various organisations as a perquisite and taxing it (depending on the income tax bracket of the employee).

Two years ago, the benchmark rate for housing loans was set at 10 per cent and for personal loans it was 13 per cent.

The benefit arising out of the difference between this rate and the concessional rate at which the loans are disbursed to employees of public sector undertakings and companies was to be taxed.

Since interest rates on housing loans have fallen to as low as 8 per cent and on personal loans to 9-10 per cent, the government is levying more tax than it should, feel some of the organisations.

Take the typical case of an HDFC employee. He gets his housing loan at 2 per cent. If he takes a Rs 10 lakh (Rs 1 million) housing loan, going by the government guideline he gets Rs 80,000 worth of interest benefit a year (Rs 1 lakh at the rate of 10 per cent minus Rs 20,000 at the rate of 2 per cent, which he actually pays).

This amount (Rs 80,000) is added to his annual income for calculating the tax, raising his tax burden by around Rs 26,000 (if he is in the 30 per cent tax bracket).

So the effective interest rate for him goes up to 4.6 per cent. Now had he taken a normal loan at 8 per cent or so, his total interest outgo (up to Rs 150,000 a year) would have been shaved off from his income.

Since he is getting that benefit only to the extent of 2 per cent (Rs 20,000) -- which he is paying as the concessional rate -- the interest cost for him for all practical purpose is as high as over 6 per cent.

The effective interest cost of a normal borrower (who takes a loan at 8 per cent) after taking into account the tax benefit, works out around the same.

"There could be cases where the concessional loan actually costs more than the normal loan," says the finance director of a company.

Companies take bulk loans from housing finance agencies and pass them on to their employees at an interest rate of around 5-6 per cent. ICICI Bank charges, on average, 3 per cent for loans to its employees.

Take, next, the case of personal loans. HDFC gives personal loans to its housing loan customers for around 8.75 per cent.

The maximum amount that can be lent as personal loan -- called top-up loans -- depends on the value of the property for which a loan was taken and the outstanding loan amount.

An HDFC employee gets this loan at 5 per cent. Hence an 8 per cent interest cost is added to his income as a perquisite (as the government benchmark is 13 per cent) and he is taxed on that amount. Unlike home loans, personal loans do not carry any tax benefit.

Even then, employees are not getting any concession as the market rate is far lower than the government rate. In ICICI Bank, the personal loan carries an average of 3 per cent interest and is capped at about one-fifth of the total loan given to an employee.

Some companies, banks and financial institutions have already moved the government and requested it to bring down the benchmark interest rate on their perquisite value of home loans and personal loans.