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No deduction for repayment of loan

My query is regarding education allowance for children and tuition fees deduction under 80C. If an employee gets….

My query is regarding education allowance for children and tuition fees deduction under 80C. If an employee gets education allowance of Rs. 750/- per month (Rs.9,000/- per annum) from his employer, and such employee incurs Rs. 24,000/- per annum for two school going children towards school’s tuition fees, then the exemption under Section 10 (14) would be limited to Rs. 2,400/- (Rs.100/- per month or Rs.1,200/- per annum per child or Rs. 2,400/- yearly for two children maximum). This means that even after overpaying Rs. 15,000/-, he will have to pay tax on Rs. 6,600/- (Rs. 9,000 minus Rs. 2,400). Is this correct ?

Dilip Divekar (Indore)

Apart from the education allowance deduction of Rs. 1,200 per child, you may also examine if the facts of the case can be covered by Sec. 10(16) that exempts scholarship granted to meet the cost of education. Here there is no limit. Once it is proved that the amount received is ?scholarship?, it will be fully exempt from tax irrespective of its terms of award. The position will remain so even if the scholarship is received for pursuing a course of education not leading to a degree.

Sec. 80C(xvii) offers deduction of tuition fees paid, whether at the time of admission or thereafter, to any university, college, school or other educational institution situated within India for full-time education of any two children of the individual. However, the eligible amount shall not include any payment towards any development fees or donation or payment of similar nature. If you pay Rs 24,000 as school fees you can claim deduction u/s 80C.

Here also there is no limit, other than the limit of Rs. 1 lakh overall under Sec. 80C. The concession is available to each of the parents, if eligible, even in respect of the same child.

I am a senior citizen pensioner. I don’t have PPF account of my own. Can I make a deposit in my son’s PPF account and claim income tax rebate myself.

Khosa

Yes, you can. Sec. 80C(4) of the Income Tax Act allows deductions on PPF contributions made,

i) in the case of an individual, in the account of the individual, the wife or husband and any child (major or minor, married or not) of such individual, and

ii) in the case of an HUF, any member thereof

Me and my wife are filing for a mutual divorce and I want to know whether alimony paid to her will be taxable for her? This will be one time full and final settlement including maintenance.

Nitin Gupta

Alimony can be of two types — i) a one-time payment and ii) a monthly (or some periodical) payment. The Bombay High Court in the case of Princess Maheshwari Devi of Pratapgarh Poona vs CIT 147 ITR 258 has come to the conclusion that a one-time payment is a transaction in which the right of the wife to get maintenance from her ex-husband has been extinguished. That right is undoubtedly a capital asset. The lump sum is a capital receipt and hence, not taxable in the hands of the wife. However, the periodical payments of could be regarded as income.

2. Yet another query (not raised by you) may arise. Is the lump-sum paid to the ex-wife, an income in her hands, u/s 56(v) since she ceases to be a relative of the husband after the divorce? The answer is — if assets are transferred in connection with an agreement to live apart, Sec. 64(1)(iv) is not applicable and therefore, any income earned by the wife from investment of such asets is not clubbable in the hands of the husband.

I have sold a plot for Rs.24,42,500 and after indexation of the purchase cost the taxable capital gains on the same is Rs.17,35,565. I want to know if according to the provisions of Sec. 54F I invest the sum of Rs.17,35,565 into a flat, would I be required to pay capital gains tax? If yes, why? If the amount of investment in flat is Rs.15,00,000 instead of Rs.17,35,565, what would be the proportional benefit (exemption) available in this case?

Also, due to some contingent need I have utilized a part of the sale proceeds from plot already in a separate venture. Now I have taken a bank loan to make up for part of the flat cost. Now, if I prepay some of this loan from own source within one year of sale of plot can I consider the prepayment amount also into my investment in flat?

Mathur

For capital gains tax deduction for assets other than residential house property, you have to consider Sec. 54F and not Sec. 54. The provisions of Sec. 54F and Sec. 54 are largely similar but with one significant difference. Under Sec. 54F, the net sale proceeds need to be invested in the new house property. So in your case, the entire Rs. 24,42,500 will have to be invested in the new flat for 100% tax deduction. If any lesser amount is invested, the deduction would be proportional.

Of course, the other way to save the tax is by investing the capital gain amount (and not the sale proceeds) in capital gains tax saving bonds u/s 54EC.

If we have understood your query correctly, I think you may be referring to the fact that there is no one to one correspondence between the funds from sale of flat and purchase of new flat. In this regard, note that such one to one correspondence is not required. You are free to apply the entire sale proceeds anywhere else and purchase the new flat on a loan. As long as the new flat is purchased (source of funds is immaterial for the deduction) the deduction (proportional as explained in the previous mail) will be available. As you may have guessed, now there is neither question nor any requirement of getting a deduction for repayment of the loan.

The authors may be contacted at wonderlandconsultants@yahoo.com

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First published on: 22-02-2010 at 22:42 IST
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