The Hindu Business Line : Tax benefits on spouse’s educational loan

I got married in December 2006. My wife had taken an education loan in her name before marriage. She has not been able to find a job till date and I am repaying the education loan taken by her. Will it be possible for me to claim any tax benefit, on the amount paid by me during the financial year 2007-08? — Amit Nisal

Section 80E of the Act permits a deduction to be claimed in respect of interest on loan taken by an individual from any financial institution or approved charitable institution for the purpose of pursuing his/her higher education or for the purpose of higher education of his/her relative.

The term relative for this purpose is defined to mean the spouse and children of the individual. The section, however, requires that the loan should have been taken by the individual, who seeks to claim the benefit of the deduction. In your case, you have stated that the loan was not taken by you. You will, therefore, not be entitled to the deduction under this Section or for that matter under any other provision of the Act, in respect of the repayment made by you of the education loan taken by your wife before her marriage with you.

I was a non-resident, living in the US, for about 22 years – between 1978 and 2000. I am back in India since 2000. During the period I was in the US, I had invested in mutual funds in dollars out of my earnings there. These investments in mutual funds were made in the US, which I continue to hold till date. What will be the tax implication if these mutual fund units are now sold and if the proceeds are repatriated into India? I had also taken an insurance in that country. This policy is to mature shortly. What will be the tax implication on repatriating the proceeds to India? — Anonymous

Since you have been in India from 2000 onwards, you will now be a resident and ordinarily resident in India in accordance with Section 6 of the Income Tax Act. Accordingly, your gain, if any, from the sale of mutual fund units held in the US will be taxable in India.

You may, however, be eligible to take credit for the tax, if any, paid in the US on such gain, while computing your tax payable in India. The credit that could be taken will be the lower of the tax payable on such income in the US or in India. In so far as the proceeds from the insurance policy is concerned, the same should normally be exempt in India under Section 10 (10D), if the policy is a life insurance policy and subject to not falling under the exceptions provided in that Section.

I have opened a bank account in the name of my son, who is now three years old. I have given instruction to my banker to transfer a sum of Rs 2,000 every month to his bank account, which is then invested in a fixed deposit in his name. Will the amount, which is transferred by way of gift by me to my son, under standing instruction to my bank, be taxable either in my hands or in the hands of my son? What will be the tax implication of the interest that is earned by my son? — Vikash Agarwal

There will be no tax implications on the gift made by you to your son. Though Section 56 seeks to bring any sum of money exceeding Rs 50,000 per annum received without consideration to tax in the hands of the recipient, the said Section also excludes sums received from a relative.

The term ‘relative’ for the purpose of this Section is defined also to include the father of the individual and therefore there would be no tax implications in the hands of your son. There would also be no tax implication on the sum transferred by you to your son, in your hands. The interest earned by your son would, however, be included in the hands of the parent by virtue of Section 64(1A). This Section provides that any income earned by a minor child except by manual labour or due to the minor child’s skill, talent or specialised knowledge and experience or any income of a minor child suffering from a disability referred to in Section 80U of the Act would be clubbed in the hands of the parent.

This Section further provides that the income of the minor child would be clubbed in the hands of the parent, whose total income in higher and once such income is clubbed in the hands of one parent, it shall in subsequent years continue to be clubbed in the hands of such parent unless the Assessing Officer is satisfied after giving an opportunity of being heard to the other parent that the income needs to be clubbed in the hands of that other parent.

I am doing a small retail business. My wife assists me in carrying on this business. Will it be possible for me to pay her a salary from the proprietary business and what will be its tax implications? — Navneet

Though there is no prohibition on your paying salary to your wife from the proprietary concern, such salary could be clubbed in your hands and charged to tax accordingly. The income by way of salary paid to your wife will not be clubbed in your hands if she possesses technical or professional qualifications and if the income is solely attributable to the application of her technical or professional knowledge and experience.

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