The Hindu Business Line : Coach me on tax benefit available for coaching fees

MY SON is studying in the 11th standard and is undergoing coaching for IIT entrance at the Academic Centre for Excellence, Bangalore. He attends evening classes four days a week, with each class running to two hours. Will the tuition fee paid towards the coaching qualify for deduction under Section 80C? My son also undergoes postal coaching for IIT entrance. Again, will this fee qualify for deduction under the said Section?

S. Aravind

Reply

Neither will the fee paid for the evening classes nor the fee paid for postal coaching qualify for deduction under Section 80C. The Section only allows deduction in respect of tuition fee paid to a university, college or school or other educational institution situated in India for fulltime education of any two children of an individual.

In both cases, the fee is neither paid for fulltime education nor to a university, college, school or other educational institution. Hence, deduction under Section 80C will not be available to you in respect of such fees.

Query

Section 10(36) of the Act allows exemption on sale of long term capital assets being equity shares listed on the stock exchange and being shares of a company which is a constituent of the BSE 500 index, provided it is acquired on or after March 1, 2003, but sold on or after March 1, 2004.

Section 10(38) grants exemption in respect of long term capital gains being shares sold on or after October 1, 2004, through a recognised stock exchange and on which STT has been suffered on sale. Under these circumstances, will the exemption under Section 10(36) be available in respect of a sale made up to September 30, 2004? Will it be possible for short term capital gains arising up to September 30, 2004, to be set off against short term capital loss arising on or after October 1, 2004? What will be the position in respect of long term capital gains earned during the said periods? What will be the tax treatment on the buyback of shares by a company?

S. Rengarajan

Reply

The exemption under Section 10(36) will be available in respect of long term capital gains arising out of sale of shares up to September 30, 2004, provided the sale is of equity shares of a company being a constituent of the BSE 500 index as on March 1, 2003, and where the purchase and sale are made through a recognised stock exchange.

The exemption will also be available in respect of shares allotted through a public issue on or after March 1, 2003, and listed on a recognised stock exchange before March 1, 2004, and where the sale is through a recognised stock exchange. In both the cases, the gain will be exempt only if it is long term.

The short term capital loss or gain arising out of transactions up to September 30, 2004, from sale of shares can be set off against such gain or loss arising from sale of shares after this date. The issue raised by you is probably because the tax rate for sales up to September 30, 2004, will be taken at the normal rates applicable to the assessee while if the sale is after this date tax is to be charged only at 10 per cent (as increased by surcharge and additional surcharge), provided the sale is through a recognised stock exchange and where STT has been levied at the time of sale. You may note that the set off is still possible.

In respect of long term capital gains or losses from transactions up to September 30, 2004, the situation would be different. If there is a loss in respect of transactions of sale up to September 30, 2004, the loss can only be carried forward and cannot be set off with a gain arising out of the sale of shares after this date and which is exempt under Section 10(38). If there is a gain from sale of shares up to September 30, 2004, tax will have to be paid on the gain (except if exempt under Section 10(36)) while the loss arising out of sale of shares after this date will be ignored if the conditions in Section 10(38) are satisfied.

When a company buys back its own shares, there is no exemption under Section 10(38), as the transaction of sale does not take place through a recognised stock exchange.

Query

I am employed in a public sector undertaking. I own a flat in Hyderabad, which was purchased as fully built-up in February 1998. The flat, the construction of which was completed in January 1998, is self-occupied.

I have been claiming deduction in respect of the interest on housing loan and also rebate under Section 88 for the principal repayment. In May 2004, I purchased another flat, which is in the joint names of my wife and myself. I have started repaying the loan since March 2005.

I do not intend to let out this property and propose to use this also as my own residence. Can I claim the deduction under Section 24 in respect of the interest on the second loan? Can I treat both the houses as self-occupied?

D. V. V. S. Murthy

Reply

You can claim the interest on both the housing loan as a deduction in computing your income from house property. You can only treat one of the houses as self-occupied.

In respect of the other property, the same will be treated as a deemed let-out property and a notional income, which will be the sum for which the property could have been let out from year to year, will be treated as income chargeable under the head `income from house property'.

You can, however, choose which of the houses you would like treat as self-occupied and which as deemed let-out property.

The principal repayment will also qualify for deduction under Section 80C in respect of both the housing loans.

(Mail your queries to taxtalk@thehindu.co.in or by post to `Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002.)

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