Section 80C Benefit On Children’s Education Applicable Only If Education Pursued In India

Parents can claim benefit under Section 80E of the Income-tax Act, 1961 in respect of interest paid on loan taken for higher education abroad. The applicability of long-term or short-term capital gains tax on sale of property will depend on the holding period of the property prior to its sale
Education loan
Education loan

My son is pursuing his graduation from a US university. I have taken a personal loan of Rs. 8 lakh, since the State Bank of India (SBI) refused to extend a loan towards his tuition fee for education abroad. Can I claim tax benefit for the amount of tuition fee, as well as for the interest paid on the personal loan taken for his education?

Answer: There are two separate provisions in the income tax laws under which an individual can claim benefits in respect of expense incurred on children’s education. The first benefit is available under Section 80C of the Income-tax Act, 1961 in respect of tuition fee paid for full-time education in any university or school in India for your two children.  The second benefit is available under Section 80E of the Act in respect of interest paid on loan taken for higher education for certain specified relative, including the children of the taxpayer. This benefits in respect of education loan is available for studying anywhere, and not necessarily in India. For availing this benefit, the loan has to be taken either from a charitable institution or from bank/financial institution. 

Since your son is studying outside India, you cannot take benefits under Section 80C. As far as deduction for interest paid on personal loan taken for education of your son in US university is concerned, Section 80 E does not specifically mention the word ‘Education Loan’, but refers to the ‘loan taken’ for the purpose of pursuing higher education. Thus, in my opinion, you can claim full deduction of interest paid by you on the personal loan, provided you are able to conclusively establish that the end use of such personal loan taken is for funding the higher education of your child. 

I own three residential properties. I sold one of them in April 2022 and bought another one by investing the profit made on sale of this property within two months of the date of sale. Am I liable to pay any tax on such capital gains? 

Answer: The answer to your question would depend on the period for which the property sold in April 2022 was held by you. In case it was held for more than 24 months, the profits will be treated as long-term capital gains, and you can claim for exemption under Section 54 of the Income-tax Act, 1961 as you have already invested the capital gains on such property for buying another residential property within two months. Please note that for claiming such exemption, there is no restriction on the number of residential houses the taxpayer can own on the date of sale of the residential property. 

However, if the property was held for less than 24 months, such profits will be treated as short-term capital gains, and no tax exemption would be available in respect of such gains, even if the profits are reinvested for buying another residential house. Short-term capital gains arising out of sale on such properties are treated as regular income, and they will be taxed at the slab rate applicable to you.

The author is a tax and investment expert. 

(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.

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