Education loan is deductible

SC Vasudeva

Q. I am an employee of LIC of India and have taken an education loan of Rs 10 lakh for the education of my son for 10 years at the rate of 8% without any subsidy in the interest rate. I have been told by my employer that I can’t avail any income tax rebate on repayment loan or the interest. Please clarify.

- Rohit Soni

A. According to the provisions of Section 80E of the Income-tax Act 1961 (The Act), in computing the total income of an assessee, being an individual, deduction is allowable of any amount paid by him in the previous year, out of his income chargeable to tax, by way of interest on loan taken by him from any financial institution or any approved charitable institution for the purposes of pursuing higher education of a relative.  The term financial institution includes a bank. The term relative includes spouse and children of that individual or the student for whom the individual is a legal guardian. Therefore, if you have taken an education loan from a bank or a prescribed charitable organisation for the higher education of your son i.e. any course of study pursued  after passing the senior secondary examination or its equivalent from any school, board or university recognised by the Central or State Government or local authority or by any authority authorised by the Central or State Government or local authority to do so, the amount of interest on such loan shall be deductible from your total income provided the same has been paid out of your income chargeable to tax. Such deduction is allowable from the gross total income for the initial assessment year and for seven successive assessment years or until the interest on such loan is payable whichever period is earlier.

---

Q. Can I lend money to our relative or friend and if yes, how much amount I can lend? Is there any documentation required?

- Gulshan Kumar

A. You can lend any amount to your relative or a friend provided the transaction is through banking channels. It would be advisable to execute a loan agreement on a stamp paper so as to avoid any litigation with regard to the proof of having advanced the sum to your relative or friend.

---

Q. My client invested Rs 1 crore as share capital in a company in the USA. He will receive Rs 20 lakh (approx.) as dividend next month. He also wants to invest some more money there. Please clarify on the following points:

1. Whether dividend so received is taxable in India.

2. Whether there is any limit of investment outside India.

- CA Rajive Bansal

A. Your queries are replied hereunder:-

a) Dividend received from a company based in the USA is taxable in India subject, however, to provisions of double taxation avoidance agreement entered into with the USA by India.

b) The investment outside India can be made within the limits prescribed under the provisions of Foreign Exchange Management Act 1999. Currently, the limit is $2,50,000 (for all the permitted current or capital account transaction or a combination of both) in a financial year under Liberalised Remittance Scheme.

---

Q. I am a retired person of 74 years and want to know about the income tax slabs (financial). Kindly clarify whether putting money in a fixed deposit can earn extra benefit (rebate) to a senior citizen under Section 80C.

- Praveen Kaur

A. Your queries are replied hereunder:

a) The slabs applicable for assessment year 2019-20 for a senior citizen who is less than 80 years of age are as under:

(1) Where the total income does not exceed Rs 3,00,000: Nil;

(2) Where the total income exceeds Rs 3,00,000 but does not exceed Rs 5,00,000: 5% of the amount by which the total income exceeds Rs 3,00,000;

(3) Where the total income exceeds Rs 5,00,000 but does not exceed Rs 10,00,000: Rs 10,000 plus 20% of the amount by which the total income exceeds Rs 5,00,000;

(4) Where the total income exceeds Rs 10,00,000: Rs 1,10,000 plus 30% of the amount by which the total income exceeds Rs 10,00,000.

A surcharge of 10% is leviable in case the income exceeds Rs 50,00,000 and 15% in case income exceeds Rs 1 crore. The income-tax so computed is to be increased by 4% education cess.

b) The amount of interest earned on fixed deposits would be allowable as deduction from total income to the extent of Rs 50,000 under Section 80TTB of the Act. There is no other additional benefit provided by the Act in respect of fixed deposit made by a senior citizen except that which is covered under the provisions of Section 80C of the Act.