Ask Mint Money | No tax benefit for repayment of education loan taken by wife

Ask Mint Money | No tax benefit for repayment of education loan taken by wife

I moved to a new company in December 2011. As my new organization wanted me to join at the earliest, they paid my two months’ salary so that I could be relieved at the earliest. How will this amount be treated for tax?

—H. Joshi

As per section 17 of the Income Tax Act, salary includes profits in lieu of or in addition to any salary. Further, profits in lieu of salary includes any amount received by an assessee from any person before joining any employment with that person. Hence, two months’ salary received by you from your prospective employer shall be taxable under the head “salary".

My 75-year-old father-in-law wants to sell his 70-year-old inherited property to me. Will it attract any tax? Where should I reinvest to save tax?

—Sivaji

Under the Act, transfer of long-term capital asset gives rise to long-term capital gains and such gains are taxable at 20% (plus applicable surcharge and cess). In this case, house property has been held by your father-in-law for more than 36 months and so qualifies as a long-term capital asset and shall be taxable in his hands at 20% as long-term capital gains.

Capital gains arising on the transfer of the house can be claimed as an exemption if the following investments are made:

* If another residential house is purchased within one year before or two years after or constructed within three years after the date of transfer of the house. However, if the amount is not invested before the date of filing the returns of income, then the proposed investment should be deposited in the Capital Gains Account Scheme and invested therefrom within the aforesaid time limits. The maximum amount of exemption shall be the amount of investment subject to capital gains earned (section 54 of the Act).

* If the whole or part of the capital gains is invested within six months after the date of transfer of the house in bonds issued by the National Highways Authority of India or by the Rural Electrification Corp. Ltd. The maximum exemption that can be claimed on account of such investment is limited to Rs50 lakh in each financial year (section 54EC of the Act).

My wife took an education loan five years ago jointly with my mother-in-law for higher studies. She has completed the course. We got married last year and she is dependent on me. Now I am repaying the education loan. Is it possible for me to claim tax benefits?

—Balakrishnan

As per section 80E of the Act, deduction in respect of interest paid on loan taken for pursuing higher education is allowed if the loan is taken by the taxpayer for himself or his relative.

In your case, tax deduction in respect of interest on education loan shall not be available to you as the loan was taken by your wife.

Nitin Baijal, director, BMR Advisors

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