The Hindu Business Line : Where house scores over education

Acquiring a residential house and giving the best education to children are the dreams that make one wistful. Both cost a fortune and setting out to fulfil both the dreams costs doubly.

Quality institutions of higher learning are woefully in short supply in India and seats thereat are limited, leaving students and their parents to seek their salvation outside at a huge cost.

Of equal priority

Given the fact that children’s education is as much a priority as acquiring a residential house, one would have expected the income-tax law to be neutral to both. But a cursory glance at the applicable provisions shows that it is not. House scores over education.

While the repayment of the principal amount of housing loan from the specified sources makes the grade for deduction under Section 80C up to an overall ceiling of Rs 1 lakh, repayment of education loan taken for oneself or for one’s dependants simply don’t figure in the taxman’s radar.

Instead, Section 80C expects one to pay tuition fees out of one’s own income so as to make similar grade subject to the condition that education was imparted in India.

Till such time parity is brought about between education and housing loan in the matter of deductibility under Section 80C, the least the Government can do is to allow tuition fees paid to an institution abroad out of one’s income as a deduction. In fact till such time India catches up with the West in the matter of higher education both in terms of quality and availability of seats for all meritorious students without discrimination, no distinction must be made between Indian and foreign education.

Bias towards housing

Even in the matter of interest, there is a pronounced but inexplicable bias in favour of housing loans. While interest makes the grade almost unconditionally, irrespective of from whom the loan is taken and how much interest is paid in computing income from house property, interest on education loans are deductible from one’s gross total income (GTI) subject to some stringent conditions.

First, while education loans must have been taken from an approved charitable institution or bank in India, housing loans can be taken from anyone at all insofar as deductibility of interest is concerned (principal of housing loans makes the grade only if the borrowings are from specified sources).

In the event, even kandu vaddi makes the grade for deduction while computing income from house property, while the same falls by the wayside under Section 80E dealing with interest on education loan. Loans abroad are cheaper and carry much lower rate of interest. One should, therefore, be given the option of taking a loan from a bank in India or abroad. After all, corporates are allowed deduction of interest payable on external commercial borrowings (ECBs) as well. Then why frown upon foreign loans taken for an equally laudable purpose?

Moreover, Section 80E allows deduction of interest from GTI only for a maximum of eight consecutive years, whereas the term of a housing loan can be anything, say, even 30 years. It is a small mercy that Section 80E condescends to countenance foreign education unlike Section 80C which while allowing deduction for tuition fees frowns on foreign educational institutions.

Straitjacketed

Section 80E, as it is, contemplates deduction of interest on a loan taken by an individual either for his own education or for the education of his spouse or children. This puts the whole thing in a straightjacket.

While starting their education, children do not have any income and it therefore makes sense for his parent to take the loan. Many parents do this happily and pay the interest discarding the moratorium period offered by banks till the education is completed.

During this period they are able to claim interest under Section 80E but when the child starts earning, he is happy to take the burden off from his parent. In all fairness, he should now be allowed to claim interest as deduction. As it is, this is not possible because the loan has been taken by his parent.

(The author is a Delhi-based chartered accountant. Responses to blfeedback@thehindu.co.in)

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