The Hindu Business Line : Is education loan tax deductible?

I have taken an education loan, from a public sector bank, for my higher education and I pay Rs 8,000 per month as principal repayment. I also pay Rs 19,000 as interest on the said loan. Will I be able to claim any tax benefit in respect of the principal repayment and also on the interest? — D. Swathi

The deduction under Section 80E is available in respect of the interest on loan taken from a financial institution or approved charitable institution for pursuing higher education either of the individual or his relative.

The term ‘higher education’ will mean full-time studies for any graduate or post graduate course in engineering, medicine, management or for post graduate courses in applied sciences or pure sciences including mathematics and statistics.

The deduction under this Section will be available for a period of eight assessment years beginning from the year in which the interest on the loan is paid. Subject to your satisfying these conditions, the deduction can be claimed by you to the extent of Rs 19,000 — being the amount of interest paid by you on the educational loan taken by you for your higher education. The principal repayment of Rs 96,000 — i.e. Rs 8,000 for 12 months — will not qualify for any deduction under the Income Tax Act in computing your total income.

During the financial year 2006-07, I incurred a loss of Rs 3 lakh on derivative trading. I am a salaried employee I filed income tax return showing this loss as a speculative loss. I, however, understand that dealing in securities is not a speculative transaction, but is to be treated as regular business income or loss. Having filed my return as a speculative loss, how do I correct it? — Nithin Bhamre

Dealing in derivatives will not be treated as speculative transaction, and the income or loss from dealing in the same will be treated as regular business income or loss, if the transaction is carried on through a registered broker or sub-broker or by banks or mutual funds, and where the transaction is carried out electronically on screen based systems, and which is supported by a time stamp contract note, which indicates the client identity and the number allotted under the SEBI Act or the SCR Act or the Depositories Act and also gives the permanent account number of the client.

You have not indicated whether you have any income other than salary. You may note that business loss cannot be set off against salary.

Speculative loss cannot be set off against income from any head. Therefore, if you do not have income from any other head, other than salary, it will make no difference whether the loss from dealing in derivatives is reflected as business loss or as speculative loss.

You may, however, note that if you have other incomes, say for example income from other sources, you could have set off the business loss against such income in computing your total income.

In any case, it would be advisable for you to file a revised return treating the loss from dealing in derivatives as a business loss as against speculative loss, if you satisfy all the conditions that are stated above.

I run a company, which is involved in investing in shares, mutual funds, bank deposits, apart from investing in other assets. Will the gain or loss from such investments be treated as business income or will the income be treated as short-term or long-term capital gains, when such income is from dealing in shares or mutual funds? Will the company get the benefit of carrying forward the loss if there is any, which can be set off against future profits? — U. Thyagarajan

Even from the query it appears that it is the business of your company to invest in shares, mutual funds etc. Given this, in the background, the income from the dealing in shares or mutual funds should only be treated as business income and not as income under the head capital gains.

You may also note that, where a company buys and sells shares of other companies, the gain or loss will be treated as a speculative gain or loss by virtue of the explanation to Section 73, except where the company is one, whose aggregate income under the other heads, other than from the head profits and gains of business or profession, is more than the income under the head profits and gains of business or profession.

This provision of course will apply only to transactions in shares and not to transactions in units of a mutual fund. The dealing in units of mutual funds will be treated only as a regular business income or loss.

A business loss can be set off against income from any head other than under the head salaries in the same year and if it cannot be so set off, it can be carried forward and set off against business income within a period of 8 assessment years immediately succeeding the assessment year in which the loss was first computed.

A speculative loss cannot be set off against income from any other source or head in the same year and can only be carried forward and set off against speculative income within a period of 4 assessment years immediately succeeding the assessment year in which the loss was first computed.

I invest in mutual funds and in some cases I have switched my money between equity and debt. Though there is no STT paid on such switching, there is a notional gain on such switching, which will represent the increased NAV of the units that are being switched. Will this result in a capital gain? — U.K. Shyamsundar

This will result in a capital gain and tax will be chargeable if there is no STT payable on such switching. The net effect of the transaction will be the transfer of one set of units and the repurchase of another.

The transfer of the units will therefore result in a capital gain, which will be chargeable to tax.