MONEY WORRIES/ B S JINDAL [SUNDAY, SEPTEMBER 21, 2003 12:26:02 AM]

I am a salaried bank officer in Mumbai. I availed, from my bank, in July 2000, an interest bearing educational loan of Rs 75,000 for tuition fees for my daughter, who was then doing her PGDM. She completed the course in April 2002. I have been paying an EMI of Rs 1,500 and the principal would be repaid by July 2005. Am I eligible to get the income tax benefit for Rs 18,000 being repaid this year (FY 2003-04) and also for FY 2004-05?

My son is studying architecture in Chandigarh. He stays in hostel. I pay appx Rs 4,500 per annum towards his tuition fees and Rs 1,500 towards his hostel expenses (excluding boarding expenses). Am I eligible to get IT benefit for Rs 6,000 too? He would complete the course in May 2004. My total existing savings this year are about Rs 52,000 u/s 88 (PF, LIC, PPF, etc).

S N Purohit

New Delhi

You are not eligible for claim of any tax benefit for the loan you have taken from the bank for pursuing higher studies by your daughter. The deduction u/s 80E of the IT Act can be claimed only on the loan taken by the assessee for pursuing higher education by the assessee himself.

You are eligible for rebate u/s 88 on the tuition fees only. Further, the rebate is available only from assessment year 2004-05 onwards. I may hasten to add here that the rebate can only be claimed on the tuition fee payment made during the financial year 2003-04. The eligibility to rebate u/s 88 would be governed by the parameters laid down under sub-section (1) of section 88.

Myself and my son intend to jointly buy a flat in Bangalore. I am presently in service and my son is a H1B visa holder working in the US for almost two years now after 3 years of study there. About 50% of the cost of the flat will be met out of my own savings and for the balance part, we need to go in for loan from any HFC or bank which we are thinking of taking in my son's name. I propose to occupy the flat myself as of now but the possibility of renting it out in future cannot be ruled out.

We have thought of the following alternatives of going about with the plan:

i) The property is registered in our joint names with % of holding by each duly specified.

ii) My share of the amount is advanced as interest-free loan to my son and the property is registered in my son's name alone. As a consideration of the loan being interest-free, I stay in the flat without paying any rent.

iii) My share is transferred to my son as gift and the property is registered in my son's name.

P R Viswanathan

Chennai

According to the facts given it is proposed that for the present the property in question would be self-occupied. If the property is registered in joint names of yourself and your son with the percentage of ownership duly specified, you would be entitled to treat the part of the property owned by you as self-occupied and the ALV of the portion owned by you would be treated as nil. In case of portion owned by your son, he being an NRI, I have my doubts, as to whether he could claim the same as self-occupied and accordingly the ALV of that portion would be liable to tax. Of course, he would be eligible to deduction of 30% of ALV and interest on the loan taken for financing the acquisition of his portion of the property. It appears to me that, the above course of action may not be tax savvy unless your son enjoys other income in India.

Your proposal to treat your share of investment as interest- free loan to your son with the property being registered in your son's name alone again would result in the ALV being taxed in his hands since the fact of interest-free advance would not be relevant for the purpose of determining income from house property in the hands of your son.

No tax implications are there in case you transfer your share of investment in favour of your son as a gift since the Gift Tax Act stands repealed long back.

In my opinion it would be advisable to acquire the property in your own name and take the loan also in your own name even though financed by yourself and your son offering collateral security in this regard so that the property could be treated as self-occupied which will also allow you to claim deduction on account of interest on loan which in turn would result in reducing your tax liability in as much as income from house property would be a minus figure.

A friend of mine opted for VRS from a general insurance company (public sector). The approximate amounts to be received by him are as follows:

Lumpsum VRS amount: Rs 9 lakh

Gratuity amount: Rs 260,000

Leave salary amount: Rs 145,000

He has put in 25 years of service and his last drawn salary was Rs 19,000 per month. His employer has indicated to him that the entire amount received by him will be subject to TDS @ 30%. Kindly let me know the deductions/rebate available to my friend under the income tax laws.

Gautam

Nagpur

Even though you have not given chronological particulars of the receipts of the amounts received by your friend, his employers would not be justified in deducting tax at source from the entire amount of the receipts.

Insofar as the lumpsum amount received at the time of VRS is concerned, your friend should invite the attention of his employers to the provisions of section 10 (10C) of the IT Act according to which VRS payments are exempt to the extent of Rs 5 lakh. The parameters for eligibility to the above exemption are enumerated in the rule 2BA of income tax rules, which provide as under:

"(i) It applies to an employee who has completed ten years of service or completed 40 years of age. This condition is not applicable in case of the amount received by an employee of a public sector company under scheme of voluntary separation framed by the said company.

It applies to all employees (by whatever name called), including workers and executives of the company authority/co-operative society excepting directors of the company/co-operative society.

The scheme of voluntary retirement/separation has been drawn to result in overall reduction in the existing strength of the employees.

The vacancy caused by voluntary retirement/separation is not to be filled up, nor the retiring employees are to be employed in another company or concern belonging to the same management.

The amount receivable on account of voluntary retirement/separation of the employees does not exceed the amount equivalent to three months' salary for each completed year of service or salary at the time of retirement multiplied by the balance months of service left before the date of his retirement on superannuating".