The Hindu Business Line : Know the tax benefit of higher education loan

The Finance Act, 2005 has substituted Section 80-E, whereby only the interest on loan taken for higher education is eligible for deduction as against the earlier provision which allowed deduction in respect of repayment of loan. The following are the highlights of the Section:

Interest on loan taken by individual for higher education to the extent it is paid is deductible.

The loan must have been taken from a financial institution or any approved charitable institution for the purpose of pursuing higher education.

The term "higher education" would mean graduate or postgraduate course in engineering, medicine, management or postgraduate course in applied sciences or pure sciences, including mathematics and statistics.

The deduction is for the first year in which the interest is paid and seven subsequent assessment years.

There is no monetary ceiling for the interest payment made by the assessee towards the education loan.

Quoting PAN

What are the documents/prescribed transactions relating to which an allottee of Permanent Account Number (PAN) should quote his PAN?

As per rule 114B of the Income-tax Rules, 1962, PAN must be quoted in the following transactions:

Sale or purchase of any immovable property valued at Rs 5 lakh or more.

Purchase or sale of a motor vehicle or vehicle as defined in Section 2(28) of the Motor Vehicles Act, 1988 which requires registration by a registering authority. However, it will not include two-wheelers (inclusive of any detachable sidecar having an extra wheel attached to the motor vehicle).

A time deposit exceeding Rs 50,000 with a banking company to which the Banking Regulation Act, 1949 applies.

A deposit exceeding Rs 50,000 in any account with Post Office Savings Bank.

A contract of a value exceeding Rs 1,00,000 of purchase or sale of securities as defined in Section 2(h) of the Securities Contracts (Regulation) Act, 1956.

Opening an account (other than time deposit account) with a banking company to which the Banking Regulation Act, 1949 applies.

Application for installation of a telephone connection (including a cellular telephone connection).

Payment to hotels and restaurants against their bills for an amount exceeding Rs 25,000 at any one time.

Payment in cash for purchase of bank drafts or pay-order or banker's cheque from a banking company to which the Banking Regulation Act, 1949 applies for an amount aggregating Rs 50,000 or more during any one day.

Payment in cash in connection with travel to any foreign country (other than neighbouring countries) exceeding Rs 25,000 at any one time.

Application for issue of credit card to any banking company to which the Banking Regulation Act applies.

Payment of Rs 50,000 or more to a mutual fund for purchase of its units.

Payment to a company of Rs 50,000 or more for acquiring shares issued by it.

Payment of Rs 50,000 or more to a company or institution for acquiring debentures or bonds issued by it.

Payment of Rs 50,000 or more to the Reserve Bank of India, constituted under Section 3 of the Reserve Bank of India Act, 1934 for acquiring bonds issued by it.

True or false

State with reasons whether the following are true or false (all sub-divisions relate to income-tax assessment year 2006-07):

i) In the case of an artificial juridical person, no surcharge is payable where the total income exceeds Rs 10,00,000.

True.

ii) A non-Indian company is treated as resident only if the control and management of its affairs is situated wholly in India during the previous year.

True.

iii) In order to be eligible to claim deduction under Section 80C, investment, contribution/subscription, etc., in eligible or approved modes should be made from out of income chargeable to tax.

False. There is no such condition that investment covered by Section 80 C should be made only out of the income chargeable to tax.

iv) Partnership firms deriving loss need not file return of income.

False. Every firm must file its return of income whether it has income or loss.

v) Where an assessee engaged in business is obligated to deduct tax at source pertaining to interest payment in India during the earlier year has failed to do so, but deducts and pays the same belatedly during the current year, he can claim the said interest as deductible business expenditure in the current year.

True. Where the tax is deducted during the earlier year and paid in the current year, the assessee is eligible for deduction of such expenditure in the current year as per Section 40(a)(ia).

Fill in the blanks

All sub-divisions in the following questions relate to income-tax assessment year 2006-07:

i) As per Section 2(47), __________or_______ a zero coupon bond will be treated as `transfer' for the purpose of capital gains tax.

As per Section 2(47), the maturity or redemption of a zero coupon bond will be treated as transfer for the purpose of capital gains tax.

ii) An assessee, after sale of house property, receiving arrears of rent ___________ (is/is not) chargeable to tax; the same computed in the stipulated manner, shall be chargeable to tax as__________ (income from other sources/income from house property/question does not arise since their is no chargeability to tax).

An assessee, after sale of house property, receiving arrears of rent, is chargeable to tax; the same computed in the stipulated manner, shall be chargeable to tax as income from house property.

iii) A motorcar is the only asset in a block. The cost is Rs 2,00,000 and the depreciation rate 15 per cent. Twenty per cent is disallowed for estimated personal use. The written-down value (WDV) of the block is Rs __________.

The WDV of the block is Rs. 1,76,000

iv) Mr A gifts cash of Rs 1,00,000 to his brother's wife Mrs B, Mr B gifts cash of Rs 1,00,000 to Mrs A. From the cash gifted to her, Mrs B invests in a fixed deposit, the income therefrom is Rs 10,000. The aforesaid Rs. 10,000 will be included in the total income of _____________

The Rs 10,000 will be included in the total income of Mr B.

(v) The time limit for filing revised return where assessment has not been completed is _________.

Any time before the expiry of one year from the end of the relevant assessment year.

Short notes

Write short notes on any three of the following with reference to the provisions of the Income-Tax Act, 1961:

a) Exemption for retrenchment compensation under Section 10(10B).

As per Section 10(10B), any compensation received by a workman under the Industrial Disputes Act, 1947 or under any other Act or rules at the time of retrenchment is exempt to the extent given below:

An amount calculated in accordance with Section 25F (B) of the Industrial Disputes Act, 1947; or

such amount not being less than Rs 50,000 as the Central Government may by notification in the Official Gazette specify in this behalf, whichever is less.

The Central Government has notified the maximum limit as Rs 5,00,000 where the retrenchment is on or after January 1, 1997 (Notification No.10969 dated June 25, 1999).

b) Carry forward and set off of unabsorbed depreciation: As per Section 32(2) where depreciation could not be set off against the income of the assessee during the year, it shall be carried forward for the following previous year and shall be deemed as depreciation allowance of that year and so on for the succeeding previous years.

However, set off of brought forward depreciation shall be subject to the provisions of section 72(2) and section 73(3). The brought forward depreciation shall be set off only after set off of business loss or unabsorbed scientific research expenditure if any brought forward by the assessee.

Similarly, while computing income from speculation business, the speculation business loss shall have precedence or priority over brought forward depreciation relating to speculation business.

c) Cost of acquisition of self generated assets: As per Section 55(2A) in relation to capital asset being goodwill of a business or right to manufacture, produce or process any article or thing or right to carry on any business or tenancy rights, etc., where the assessee has not incurred any expenditure, the cost of acquisition will be `nil'.

However, if the assessee has obtained these assets in a manner referred to in section 49 (i) to (iv), the cost to the previous owner shall be taken as cost of acquisition if he has incurred any expenditure on acquisition.

d) Power to transfer cases under Section 127: As per Section 127(1) the Director-General, Chief Commissioner or Commissioner, after giving the assessee a reasonable opportunity of being heard, may transfer any case from one or more assessing officers subordinate to him to any other assessing officer who is also subordinate to him.

However, where the assessing officers between whom the case is transferred are not subordinate to the same Director-General, Chief Commissioner or Commissioner, the transfer of case is to be made only after giving the assessee a reasonable opportunity of being heard and after recording the reasons for doing so. Where there is no agreement between the Director-General, Chief Commissioners or Commissioners in respect of transfer of any case the Board may, by notification in the Official Gazette, pass such order for transfer of case.