“DEDUCTION TOWARDS INTEREST ON EDUCATION LOAN ! ”


TAX TALK-23.12.2012-THE HITAVADA

TAX TALK  
BY CA. NARESH JAKHOTIA
Chartered Accountant

“DEDUCTION TOWARDS INTEREST ON EDUCATION LOAN ! ”

Query 1]
I have a housing loan with interest repayment of Rs. 1.24 Lacs and principal repayment of Rs. 2 Lacs. I have claimed for reduction of Rs. 1.24 Lacs in interest and Rs. 1 Lacs in principal repayment. But income tax officials disagree. They say that each can claim fifty percent deduction. Please clarify. [L.desikan- sowdesi2003@yahoo.co.in]
Opinion:
1.      Ownership is a primary condition, precedent for admissibility of deduction towards interest U/s 24(b) & towards Principal U/s 80C of the Income Tax Act-1961.
2.      If you own the property individually, then you alone can claim deduction u/s 24(b) & u/s 80C even though the name of any other person is incorporated in the loan documentations.
3.      It appears that the Income Tax Officials are not agreeing for the entire deductions u/s 24(b) & u/s 80C in your hands alone probably for the reason that there is some other co-owner in the ownership documents. If you can substantiate the fact of your individual ownership in the property, the deduction would not be denied.

Query 2]
Recently, one of our valued customers had purchased 1200 sq.ft. land in Chennai sub-urbs. He had withdrawn cash of about Rs. 22 Lacs and paid the amount to the seller. The money basically came from the retirement benefits of his father who was an ex-government employee. Since it was a heavy withdrawal in parts, will there be a query from the income tax?  If the query comes from the IT department, what should be done? The customer has documents for the retirement benefits and for purchase of property as well. Kindly advise. [anantharamanr@svcbank.com]
Opinion:
1.      Words of Caution:
One precaution normally every tax payer should take. As far as possible, have a transaction by account payee cheques/instruments only. There is a penal consequences under section 269SS of the Income Tax Act-1961 if any person accepts the loan or deposits of Rs. 20,000/- or more otherwise than by an account payee instruments. Even amongst the family members the loan of Rs. 20,000/- or more in cash is prohibited.
2.      In normal course, cash deposits are a matter of investigations & no special inquiry is carried out for the cash withdrawals. In the given specific case, there is nothing to worry or bother as source of fund is explainable. The withdrawals could be treated either in the capacity of an agent acting on behalf his father for purchase of flat or could be treated as gift received by son from the father. For the genuine transactions like this, the assessee should not get panic. The Income Tax Department in general is an assessee friendly.

Query 3]
Please refer Tax Talk Dated 17/05/2012. Regarding HRA claim, an employee of a private limited company, not receiving HRA from company, living in a rented house and having a
housing loan and such house is vacant can claim HRA? Please advise. [pravin.aparajit@gmail.com]
Opinion:
1.      Assessee receiving HRA from Employer:
Salaried Assessees who are in receipt of House Rent Allowance (HRA) from an employer can claim an exemption u/s 10(13A) of the Income Tax Act-1961
2.      Assessee not receiving HRA:
Any individual who is not in receipt of HRA from the employer can claim deduction towards rent payment for residential accommodation u/s. 80GG of the Income Tax Act.
The condition precedents for deduction u/s 80GG are as under:-
a] He has to prepare a declaration in Form No.10BA.
b] He or his minor child, spouse or HUF of which he is a member, should not be owner of a house at the place where he ordinarily resides or performs his duties; or he should not be owner of any house at any other place, the income therefrom is to be determined under section 23(2) (a) or, as the case may be, under section 23(4) (a) ( i.e.income from self-occupied house property).
3.      In your specific case,
a] Since employee is not in receipt of HRA, no deduction is admissible u/s 10(13A).
b] Since employee appeared to have a house at the place of employment, no deduction is admissible u/s 80GG as well.

Query 4]
We have availed the Education Loan for my son to study abroad. I am co-applicant in the said loan account. First installment of Loan is availed in the month of August-2012 and course period is of 2 years. I am not regularly paying the interest applied on the loan. However, I want to repay the entire interest amount by March-2013. My query is whether I shall get the IT exemption for the interest amount repaid by me and whether the interest amount could be paid any time during the F Y? [spvijaykar@gmail.com]
Opinion:
An individual assessee can get deduction in respect interest paid on education loan taken from the financial institution for pursuing higher education either for himself or for specified relatives.
As far as the deductibility of the interest amount is concerned, it may be noted that
1.      The deduction is allowed in computing the taxable income of the initial assessment year (i.e., the assessment year in which the assessee starts paying the interest on the loan) and 7 year immediately succeeding assessment years ( or until the above interest is paid in full, whichever is earlier)
2.      No deduction is admissible towards Principal repayment.
3.      Interest has to be paid out of the income chargeable to tax.

In your specific case, you can claim deduction towards the interest paid on education loan taken by you as a co-applicant and it can be paid any time during the financial year out of your income chargeable to tax.


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