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Interest on bank loans

Awni Ranjan (Freelance Consultant) (77 Points)

21 March 2012

I am a coborrower ( not a guarantor ) for an educational loan of Rs 20 lacs with my son ( prime borrower ). The bank charged interst about Rs 2,00,000 for FY 2011 - 2012. Please let me know about the following

Relevant IT section for claiming rebate in income
Maximum limit of rebate
Ratio of interest claim for both of us to be decided bu us or it has to be on equal basis

Thanks

Awni Ranjan

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8 Replies

RAMESH CHANDRA SHARMA (munka istentisztelet) (899 Points)
Replied 21 March 2012

DEDUCTION IS ALLOWED UNDER SECTION 80 E...

THE WHOLE AMOUNT OF INTEREST IS ALLOWED AS DEDUCTIONS ........PROVIDED........

1.Deduction available only to Individual not to HUF or other type of Assessee.

2.Interest should have been paid on loan taken from any financial institution or any approved charitable institution for the purpose of pursuing his higher education. Interest on Loan taken from relatives or friends will not be eligible for deduction under section 80E.

3. Loan should have been taken for the purpose of pursuing higher studies of Individual , Spouse, Children ofIndividual or of the student of whom individual is legal Guardian.

4. Deduction is available for a maximum period of 8 assessment years including first year of repayment or until the interest is fully repaid whichever is earlier.

ETC.....

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RAMESH CHANDRA SHARMA (munka istentisztelet) (899 Points)
Replied 21 March 2012

DEDUCTION IS ALLOWED UNDER SECTION 80 E...

THE WHOLE AMOUNT OF INTEREST IS ALLOWED AS DEDUCTIONS ........PROVIDED........

1.Deduction available only to Individual not to HUF or other type of Assessee.

3. Loan should have been taken for the purpose of pursuing higher studies of Individual , Spouse, Children ofIndividual or of the student of whom individual is legal Guardian.

4.Deduction is available for a maximum period of 8 assessment years including first year of repayment or until the interest is fully repaid whichever is earlier.

4. Deduction is available for a maximum period of 8 assessment years including first year of repayment or until the interest is fully repaid whichever is earlier.

ETC.....

Ninad Pandit (CA Final Student) (254 Points)
Replied 21 March 2012

Dear Awni,

Relevant IT section for claiming rebate in income - Sec.80E
Maximum limit of rebate - the amount of interest charged to you.

I am herewith also reproducing the taxt of the relevant section for your reference.

[Deduction in respect of interest on loan taken for higher education.

80E. (1) In computing the total income of an assessee, being an individual, there shall be deducted, in accordance with and subject to the provisions of this section, 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 purpose of pursuing his higher education ³⁸[or for the purpose of higher education of his relative].

(2) The deduction specified in sub-section (1) shall be allowed in computing the total income in respect of the initial assessment year and seven assessment years immediately succeeding the initial assessment year or until the interest referred to in sub-section (1) is paid by the assessee in full, whichever is earlier.

(3) For the purposes of this section,—

(a) “approved charitable institution” means an institution specified in, or, as the case may be, an institution established for charitable purposes and ³⁹[approved by the prescribed authority] under clause (23C) of section 10 or an institution referred to in clause (a) of sub-section (2) of section 80G;

(b) “financial institution” means a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act); or any other financial institution which the Central Government may, by notification in the Official Gazette⁴⁰, specify in this behalf;

⁴¹[(c) “higher education” means any course of study pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognised by the Central Government or State Government or local authority or by any other authority authorised by the Central Government or State Government or local authority to do so;]

(d) “initial assessment year” means the assessment year relevant to the pre-vious year, in which the assessee starts paying the interest on the loan;]

⁴²[(e) “relative”, in relation to an individual, means the spouse and children of that individual or the student for whom the individual is the legal guardian.]

Awni Ranjan (Freelance Consultant) (77 Points)
Replied 21 March 2012

Dear All

Thanks for your reply.

Please clarify whether both the joint borrowers can claim it, e.g total interst charged Rs 2 lacs Borrower A claims Rs 50,000 and Borrower B claims remaining Rs 1,50,000 or less depending on income tax payable,

All the sites dealing with 80E or commentary are silent about it

Awni

RAMESH CHANDRA SHARMA (munka istentisztelet) (899 Points)
Replied 21 March 2012

I THINK THERE IS NO SUCH PROVISIONS IN RESPECT TO THIS AREA......AND I DONT THINK IT WILL BE EXISTED THERE AS WELL...BECAUSE U CANT SHARE SUCH INTEREST SO, M NOT CONFIDENT, THE DEDUCTIONS WILL BE APPLICABLE TO SINGLE INDIVIDUAL .....

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svrswagath (CA Job) (11 Points)
Replied 22 March 2012

Sir

I feel, one of the major condition in Section 80E is that the loan should have been taken in the Assessee's name (Not in the name of the relative for whose education loan is obtained and also not in the joint names of anybody) as is clear from the words '...on loan taken by him...' in Section 80E(1). Similarly, Section 80E(3)(e) says that "“relative”, in relation to an individual, means the spouse and children of that individual". Since the word used is 'individual', I feel that joint borrowing is not recognised under section 80E.

To avoid this position, I feel that two different loans can be obtained by two persons instead of obtaining a joint borrowing, so that both can claim the benefiot undr section 80E, if other conditions are satisfied.

S. VENKATARAMANI

RAMESH CHANDRA SHARMA (munka istentisztelet) (899 Points)
Replied 22 March 2012

yes u r right but ....here .....the loan is taken in the name of son..........then parents can get the deduction of that.......m not quite sure but as far as i know ...this is right..........