Tax Talk

I plan to go for an MBA and want to take a loan for it. What are the tax benefits available on the loan? Does my father also get the benefits in case he takes the loan?

- Sachin

According to the Indian Income-tax provisions, a deduction can be claimed by an individual out of his income chargeable to tax, in respect of the interest paid on loan taken by him from any approved institution (including bank and financial institutions) for pursuing higher education of his relatives, including children. The deduction can be claimed for eight years starting from the year in which he first repays the interest or until the interest is paid by the individual in full, whichever is earlier.

Hence, either you or your father, whosoever takes the loan, can claim the deduction for interest paid on the loan.

In case your father pays the tuition fees, deduction for the same will be allowed to him under section 80C subject to overall ceiling of Rs 1 lakh including other savings covered by section 80C.

I am a retired person. My son, working in a MNC, is an assesee under the Income Tax Act. He worked for two years with Company X and shifted to another job in Bangalore. He received his PF accumulations in the previous company during this financial year, amounting to Rs 3 lakh. He gifted the same to me. I am not an assesee but have a Pan card.

I want to know:

i) Whether the PF amount received by my son is taxable, even though he gifted it to me and whether he can claim tax exemption for this transaction?

ii) Is it necessary to show this amount as income while submitting his I-T returns next year?

iii) I have received the amount as gift. Should I pay any tax? I have no other income.

- Vemanna

(i) The accumulated balance in the PF account will be exempt only if withdrawn under specified circumstances. If the amount contributed towards

Recognised Provident Fund is withdrawn by an individual before rendering continuous service with his employer for a period of less than five years, the same is taxable as salary in the year of withdrawal. Based on the facts provided, we understand that your son withdrew the PF accumulation and did not complete five years of continuous service with his employer.

Hence, the withdrawal is taxable and the taxable amount is to be calculated according to the provisions of the tax law.

Further, gifting an amount to another person does not absolve the person withdrawing his accumulated balance from the liability of tax.

(ii) Yes. The taxable amount of PF withdrawal calculated according to the tax provisions needs to be disclosed in your son’s Income tax Return in the year of withdrawal.

(iii) According to the tax provisions, any sum of money received from a relative as gift is exempt from tax. The term relative includes son. Hence, the sum gifted to you by your son shall be tax exempt in your hands.

SANJIV CHAUDHARY

Tax deduction can be claimed in respect of the interest paid on loan taken from any approved institution for higher education of your children.

(The author is a practising chartered accountant)

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