I had capital gains from sale of a residential house in December 2010. As I get six months time under 54EC, I want to invest in National Highways Authority of India (NHAI) bonds in April or May. How long can I keep the capital gains in my savings bank account to avoid paying tax?


As per the provisions of section 54EC of the Income-tax Act, where capital gain arises on the transfer of a long-term capital asset and the assessee invests the whole or any part of the capital gains in long-term specified assets, such as bonds issued by NHAI or the Rural Electrification Corp. Ltd, within a period of six months from the date of such transfer, then the amount of capital gain so invested shall not be charged to tax. However, the maximum amount that will be allowed as a deduction shall not exceed Rs50 lakh during any financial year.

Therefore, capital gains arising from the sale of your residential house may be invested in NHAI or REC bonds within a period of six months from the date of sale of the house. In this six-month period, the capital gain amount may be kept in a savings bank account but failure to invest the amount within the period will make the entire capital gain taxable.

I went abroad for my higher education for which I took an education loan from a bank in the US. Now I have come back to India but continue to service this loan through my past savings and current earnings. Can I claim tax benefit on this loan?

—Srirang Srikanth

As per section 80E of the Income-tax Act, deduction is allowed on interest paid by an individual on loan taken by him from any financial institution or any approved charitable institution to pursue higher education or for the higher education of his spouse and children for a period of eight assessment years, starting with the year in which the individual starts paying the interest.

As per the provisions of the section, a financial institution means a banking institution to which the Banking Regulations Act, 1949 applies or one specified in this regard by the Central government, by notification in the Official Gazette. In other words, education loan should be taken from a bank in India (including Indian branches of foreign banks). Loans from notified financial institutions and approved charitable institution are also eligible for section 80E deduction. No deduction would be available if the loan is taken from a bank outside India.

Therefore, in your case if the bank in the US is a branch of an Indian bank, then you would be entitled to claim the deduction of interest for the period as specified above. However, if the loan is taken from a bank/institution that is not notified for this purpose then you can’t claim tax benefit.

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