The Hindu Business Line : Deductions during moratorium period

Please advise me whether interest on loan taken for the education of my son will qualify for deduction during the moratorium period? — Niraj Raman

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 in respect of the interest on the loan so long as the same is paid, even during the moratorium period.

I have a PPF account in my name and I have invested Rs 70,000 in this account in the current financial year.

I now propose to open another PPF account in the name of my minor daughter and invest another Rs 70,000 in her name in that PPF account. Would this be permissible? — Parthasarathi

The Central Government has amended the PPF Scheme through G.S.R. 908(E) dated December 6, 2000.

The application form, under the scheme being Form A issued through G.S.R. 908(E) makes it clear that no interest will be paid to a subscriber on the deposits made in excess of Rs 70,000 in a financial year. In computing this limit, the deposits made in the following names need to be aggregated

Self account

Minor(s) of whom the individual is the guardian

There are individual limits of Rs 70,000 each for a Hindu Undivided Family and Association of persons.

It may be noted that deposits made prior to the date of this notification in excess of the aggregate limit prescribed, of Rs 70,000, will be eligible for interest even after the date of this notification.

Form the above it can be clearly seen that while there is no prohibition on your investing a further Rs 70,000 in the name of your minor daughter, no interest shall be paid to you on the investment made by you in the name of your minor daughter.

In your reply to the query of Shri Narendra Kumar Sinha in this column on April 272008, you have stated that where his income by way of salaries is Rs 1.5 lakh and where the short-term capital gain from sale of shares through a recognised stock exchange is another Rs 1 lakh, the deduction under Chapter VI-A for the assessment years 2008-09 will only be Rs 40,000, even where the investment in NSCs is a sum of Rs 1 lakh.

I understand that the deduction under Chapter VI-A will not be restricted to Rs 40,000, but will be available to the extent of Rs 1 lakh in such a case. Kindly clarify? — Anonymous

In this column a reply had been given in relation to the income of the querist that the maximum amount of deduction under Section 80C, which falls under Chapter VI-A will be Rs 40,000 even though the investment that is made and which would otherwise qualify for deduction under Chapter VI-A would be Rs 1 lakh.

This view expressed in this column does not appear to be the correct one. The view expressed by the reader apparently appears to be the correct one.

Section 111A, which deals with the rate of tax on short-term capital gain in its proviso provides that where an assessee is an individual or HUF, and where the total income as reduced by the short-term capital gains is less than the maximum amount not chargeable to tax then such short-term capital gains shall be reduced by the amount by which the total income as so reduced by the short-term capital gains, falls short of the maximum amount not chargeable to tax and that such short-term capital gains is to be charged to tax at 10 per cent.

Section 111A(2) provides that where the gross total income of an assessee includes any short-term capital gains, the deduction shall be allowed under Chapter VI-A on the gross total income as reduced by such short-term capital gains. In the instant case, the gross total income of the querist would be Rs 2.5 lakh that is the aggregate of the salary income and the short-term capital gains.

The deduction under Chapter VI-A, which Chapter includes Section 80C will, therefore, have to be restricted to the gross total income as reduced by the short-term capital gains, which is Rs 1.5 lakh, as provided for in Section 111A(2).

It may, however, be noted that Section 80C does not allow a deduction in excess of Rs 1 lakh.

The proviso to Section 111A will operate only in a case where the total income, i.e. the gross total income as reduced by the deduction under Chapter VI-A, falls below Rs 1.1 lakh (for the assessment year 2008-09).

In the querist’s case, however, the total income would be Rs 1.5 lakh, i.e. the gross total income of Rs 2.5 lakh as reduced by the deduction under Section 80C of Rs 1 lakh. Since this sum of Rs 1.5 lakh as computed exceeds the maximum amount not chargeable to tax, the proviso to Section 111A would not be operative.

The net effect would be that the deduction under Chapter VI-A, which includes Section 80C would be available to the extent of Rs 1 lakh. It may also be noted that the sum of Rs 40,000, i.e. the excess of total income over the basic exemption of Rs 1.10 lakh will be charged to tax at 10 per cent (as increased by the additional surcharge of 3 per cent thereon).

The columnist thanks the reader for pointing out the anomaly in this regard.

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