Tax queries
I want to take an education loan to do an MBA. Will the repayment of the loan qualify for income-tax deduction?
—GAURAV MAHAJAN
(Illustration: Jayachandran / Mint.)
Repayment of interest on an education loan for higher studies qualifies for deduction under section 80E of the Income-tax Act. Higher education means full-time studies for any graduate or postgraduate course in medicine, engineering or management, or any postgraduate course in applied sciences or pure sciences, including mathematics and statistics. No deduction is allowed for repayment of the principal amount. The entire amount of interest, without any limit, is allowed as deduction, provided it is paid out of the taxable income of the assessee. Further, the period of deduction cannot exceed eight assessment years, commencing from the year in which the first repayment is made.
What tax deductions can I get for repayment of a home loan?
—BALJEET
Primarily, you can get two types of deductions for a home loan, one on repayment of the principal amount of the loan, and the other on the interest on the loan. Whether you reside in your house or give it out on rent, the repayment of the principal amount of loan will qualify for deduction under section 80C. The maximum amount of deduction available for repayment of the principal amount is Rs1 lakh. Under section 24(b), up to Rs1.5 lakh can be claimed as deduction under the head “Income from House Property” for the interest component of a loan in case of a self-occupied house. However, the full amount of interest can be claimed as deduction in case the house is given on rent.
I am retired. My sole source of income is interest paid by my bank. How much will I have to pay in taxes and charges if I earn a profit from stock market investments?
—AMAR SINGH
The amount of taxes you’ll pay will depend on your total income and age. If you have completed 65 years, you will be considered a senior citizen under the Income-tax Act, and from this financial year (2008-09), you will be required to pay income tax only if your net income from all sources exceeds Rs2.25 lakh. Your income consists of bank interest, which is chargeable under the head “Income from Other Sources”. The income from share sale and purchase will be taxed under the head “Capital Gains”. If shares or mutual funds are sold within a year of their purchase, the gains thereof, called short-term gains, are taxed at a flat rate of 10% plus 3% education cess. This rate has been hiked to 15% plus 3% education cess with effect from financial year 2008-09. However, long-term capital gains—from sale of shares or mutual funds more than one year after their purchase—are exempt from tax. To claim this exemption, the sale transaction should be entered through a recognized stock exchange in India and the securities transaction tax paid on the transactions.