The Hindu Business Line : When education becomes taxing

Can I claim the interest accrued during the moratorium period, that is, during the period when I am not required to repay the loan or the pay the interest also as a deduction? — K. Sathayya

The deduction under Section 80E is available only if the following conditions are satisfied:

The assessee is an individual,

The assessee has out of his income chargeable to tax paid the interest on the loan,

The loan is taken from a financial institution or a bank or an approved charitable institution, and

The loan has been taken for the purpose of pursuing the assessee’s higher education.

The deduction is available for eight Assessment Years commencing from the AY relevant to the previous year in which the assessee starts paying the interest.

You can, therefore, start claiming the deduction under this Section only from the year in which you actually start paying the interest. During the moratorium period you cannot claim a deduction under this Section.

You may note that the Finance Act, 2007 amended Section 80E to allow the deduction of interest on loan taken by an individual for higher education of the individual, the spouse and children. This amendment is effective from the Assessment Year 2008-09.

I would like to transfer Rs 20 lakh to my mother’s bank account as a gift. She will be investing this in fixed deposits with banks.

My mother is likely to earn an interest income of around Rs 2 lakh per annum from the deposits. Will the interest from the deposits be taxable in her hands or will it be clubbed with my income? Can she claim deduction under Section 80C by m aking investments in her name?

Will I be liabile to pay tax on the gift of Rs 20 lakh? — Gaurav

The Rs 20-lakh gift will not give rise to any tax implication either in your hands or that of your mother.

This will be so as there is a specific exclusion in Section 56(2)(v) on a gift made to a relative and because the definition of the term relative in the provision will also include the mother of an individual. The interest earned by your mother on the deposit made out of the Rs 20 lakh will be taxable only in her hands and not be clubbed in your hands.

Your mother will be able to claim deduction under Section 80C by making investments in her name.

I reside in a rented premises close to my place of work in Uttar Pradesh. I pay a monthly rent of Rs 7,500.

I have constructed a house some 5 km away. For this I have taken a bank loan and pay an EMI of Rs 5,000. I live in the rented premises, and propose to let out the house I have constructed.

Will I be able to claim exemption for House Rent Allowance (HRA) on the rent paid as well as the tax benefits on the EMI? — Rama

The exemption under Section 10(13A) of the Income-Tax Act in respect of House Rent Allowance can be claimed so long as an individual receives HRA and actually pays rent for the house he stays in.

The fact that he owns another house is no disqualification to claiming exemption under Section 10(13A). You can, therefore, claim the exemption under Section 10(13A) if you get HRA.

The principal repayment will qualify for deduction under Section 80C and interest paid on the housing loan for deduction in computing the income from house property. The deduction in respect of the interest can be claimed under Section 24.

Your claim for exemption under Section 10(13A) will not affect your claim for deduction either under Section 80C or under Section 24.

My father and mother were joint holders of shares listed in a recognised stock exchange.

My father passed away six years back. My mother had retained the shares in physical form until last year, when she got them dematerialised. Within a few months of dematerialising the shares, my mother sold the shares.

Will the sale of the shares be subject to capital gains tax? What will be the cost of these shares sold by her? — Jagdish Mehta

If the sale of shares has been through a recognised stock exchange, the Securities Transaction Tax would be payable at the time of such sale.

If this were so, the capital gains would be exempt under Section 10(38). If the sale has not taken place through a recognised stock exchange, capital gains tax would be chargeable. Tax would be chargeable on the capital gains at 20 per cent (as increased by the appropriate surcharge and additional surcharge).

You may note that since the shares have been held for a period exceeding twelve months, the shares would be regarded as a long-term capital assets and the gains long term.

You may also note that the period for which the shares were held in the joint names of your father and mother will also be taken into account in determining whether the shares have been held for a period exceeding twelve months.

The cost of acquisition of these shares will be the price for which these shares were originally acquired.

(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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