Article Details

Tax deduction on education loan taken for higher studies
TAX TALK-27.02.2017-THE HITAVADA
 
TAX TALK
 
CA. NARESH JAKHOTIA

Chartered Accountant

 
Tax deduction on education loan taken for higher studies

 
 
 
Query 1]
I have the following queries:
  1. If interest on education loan is not paid in previous financial year & if we pay the previous & current year interest then can we claim deduction u/s 80E for both the year interest?
  2. If suppose I don't file ITR for previous year then can the interest paid in previous year be claimed in the next year?
  3. Can any other deduction be claimed for any other loan? Please advice. [adityapatel025@gmail.com]
Opinion:
“Education is our passport to the future, for tomorrow belongs to the people who prepare for it today.”  ― Malcolm X
 
 
Education loan carries a tax benefit U/s 80E of the Income Tax Act-1961. It is subject to various terms & conditions as under:
  1. Deduction U/s 80E is available only against the interest on loan taken for higher education. Deduction is available only to an Individual who has taken the loan and not to any other person. (HUF cannot claim deduction by making the repayment of the loan taken for education of its members.)
  2. The loan could be availed from the specified financial institution or approved charitable institution for the higher education of self or specified relatives. Financial institution, for the purpose, means a banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking institution referred to in section 51 of that Act); or any other financial institution which the Central Government may, by notification in the Official Gazette, specify in this behalf. HDFC Ltd & Credila Financial services private limited are notified financial institution for the purpose of section 80E. No deduction U/s 80E is available in respect of loan taken by an employee from employee co-operative society or from private sources.
  3. The higher education means any course of study pursued after passing senior secondary examination or its equivalent from any school, board or university recognized by the Central Government or State Government or local authority or by any other authorized authority.
  4. “Relative” for the purpose of deduction means spouse & children of that individual. Even legal guardian of student can claim the deduction u/s 80E.
If all above conditions are satisfied, entire amount of interest paid would be available as deduction. The deduction would be available from the year in which individual starts paying the interest and seven subsequent assessment years. There is no ceiling on the upper limit for claiming interest amount as deduction. No deduction towards the repayment of the principal portion of the loan is available as deduction. There is no condition that the course should be in India. Deduction available if Interest is been paid during the previous year and was paid out of income chargeable to tax which means if repayment is made from income not chargeable to  tax than deduction will not available.
In your specific case,
  1. Deduction will be allowed only when actual interest is paid. If interest on education loan is not paid in previous financial year, then no deduction is admissible in the year of accrual (i.e., the year in which it is due)
  2. If we pay the previous & current year interest then one claim deduction u/s 80E for both the years.
  3. There is no other section providing for deduction towards education loan under the Income Tax Act-1961.
 
Query 2]
Kindly clarify whether the interest of Kisan Vikas Patra is taxable or not under Income Tax act? [bpmajumdar2006@rediffmail.com]
Opinion:
Unlike PPF, interest on Kisan Vikas Patra (KVP) is fully taxable.
 
 
Query 3]
I have a query regarding income tax exemption for Transport & Travelling Allowance received by a physically handicapped person for assessment year 2017-18. Please guide about the deduction admissible. [ranjitwarkad@gmail.com]
Opinion:
Realizing the hardship, inconveniences & challenges faced by handicapped, Income Tax Act has incorporated few concessional & beneficial tax provisions for the disabled like higher deduction u/s 80D towards medi-claim policy, deduction U/s 80DDB towards treatment of prescribed disease/ailments, u/s 80DD towards maintenance of a dependant with disability, U/s 80U to person with disability, U/s 64 by exclusion of clubbing provision in respect of income of minor etc.
 
Coming to your specific query, it may be noted that there are different tax treatment for travelling allowance vis a vis transport allowance received by an employee. Travelling allowance (Leave Travel Concessions/Allowance) is eligible for tax benefit u/s 10(5) whereas Transport allowance is eligible for deductions u/s 10(14), as under:
 
Leave Travel Concessions (LTC):
LTC is the most common element of compensation adopted by employers to remunerate employees due to the tax benefits attached to it. Section 10(5) of the Income-Tax Act, 1961, read with Rule 2B, provides for the exemption and outlines the conditions subject to which LTC is exempt. LTC is eligible for exemption if the employer provides LTC to employee for travel to any place in India undertaken by the employee for himself & his family. Such exemption is limited to the extent of actual travel fare incurred by the employee. Travel has to be undertaken within India. Overseas destinations are not covered for exemption. No special benefit / deduction is available to handicapped taxpayer u/s 10(5).
 
Transport or Conveyance Allowance:
Conveyance allowance, also called Transport Allowance, is a type of allowance offered to employees to compensate for their travel from residence to and from respective workplace location. Conveyance allowance is paid by an employer only if the there is no transportation provided by the employer. Such conveyance allowance is exempt from tax up to Rs. 1,600 per month (Rs. 3,200 per month for blind, deaf, dumb and handicapped employees) u/s 10(14).
 
Query 4]
If I do not submit Form 15G to my employer while withdrawing PF amount. TDS would be deducted from my PF amount. So can I claim the deducted TDS from my PF amount at the end of the year while filling Income Tax return if my total income is below tax slab? [amitvsobti@hotmail.com]
Opinion:
Deduction of tax by the payer (TDS) is merely payment of tax by the payer on behalf of payee, credit of which is available to the payee at the time of filing their income tax returns. You can get the refund of the TDS amount by filing income tax return if your ultimate tax liability is nil.
 
 
[The author is a practicing Chartered Accountant from Nagpur. Readers may send their direct tax related queries at
SSRPN & Co
10, Laxmi Vyankatesh Apartment
C.A. Road, Telephone Exch. Square
Nagpur-440008
or email it at nareshjakhotia@ssrpn.com]
 

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