How to repay education loan in parents’ name

The transfer of funds to your account by your son (considered a specified relative), for the purpose of loan repayment, will not be taxable income for both your son or you. Photo: iStockphoto
The transfer of funds to your account by your son (considered a specified relative), for the purpose of loan repayment, will not be taxable income for both your son or you. Photo: iStockphoto

Summary

From a tax perspective, as per the provisions of section 56 of the Income-tax Act, 1961, where an individual receives any sum of money, without consideration from a specified relative, the same is not considered as taxable income of the individual.

I had taken an education loan for my son, who has completed his studies in the US and is currently employed. I have been paying the interest portion till now. Now he wishes to repay. Should I ask him to pay direct to the loan account? Also, advise me about the tax implication and remittances mode for the amount to be transferred.

—Name withheld on request

It has been assumed that the education loan was taken by you in India and your son is currently above 18 years of age.

From a tax perspective, as per the provisions of section 56 of the Income-tax Act, 1961, where an individual receives any sum of money, without consideration from a specified relative, the same is not considered as taxable income of the individual. Hence, the transfer of funds to your account by your son (considered a specified relative), for the purpose of loan repayment, will not be taxable income for both your son or you.

Separately, as per the provisions of section 80E of the Act, the interest component on education loan taken by an individual for the purpose of higher education of self or relative (includes children), may be eligible for deduction under section 80E of the Act, up to a maximum of 8 financial years (starting with the year in which interest repayment starts) and subject to fulfilment of specified conditions. Availability of this deduction in your/your son’s hands can be evaluated, depending upon whose name the loan continues to be in, tenure of the loan, eligibility of the lender institution and other prescribed conditions.

Please note that the forex implications of any of the above transactions should be reviewed separately, in case any of you are residing outside India.

I am a senior citizen and wish to invest in the senior citizens savings scheme. Please advise if I can book profits in a few of my shares and transfer the proceeds towards SCSS this fiscal, and on tax implication.

—Manish Mankad

We understand that you are a senior citizen below the age of 80 years and wish to invest the sale proceeds from share of listed equity shares (held for more than 12 months) in senior citizens savings scheme, 2019.

Section 112A of the Income-tax Act, 1961, says capital gains arising from transfer of a long-term capital asset being an equity share in a company shall be taxed at 10% (plus applicable surcharge and cess) on capital gains exceeding 1 lakh, if STT (securities transaction tax) has been paid at the time of acquisition and transfer of such capital asset. The long-term capital gains in this case is to be calculated without giving benefit for cost inflation index. Where shares were acquired prior to 1 February 2018, grandfathering provisions as per provisions of section 55 shall be allowed while calculating cost of acquisition for such asset.

Please note that investment in SCSS is eligible for deduction under Section 80C(2) of the Act (subject to the overall maximum limit of 1.50 lakh), however from incomes other than capital gains. Hence, investments in SCSS shall not be eligible for any tax benefit against taxable LTCG (i.e., gains exceeding 1 lakh) and you shall be required to pay tax @ 10% on taxable LTCG. There are other exemptions available against taxable LTCG under Section 54EC, 54F etc., towards reinvestment in prescribed bonds, residential house, etc., which may be explored.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. 

(Write to us at mintmoney@livemint.com to get it answered from experts.)

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