Tax Query: Tax benefit on interest paid on education loan allowed under IT

My 24-year old son wants to pursue higher studies in the UK. I am a resident Indian for income tax purposes. Can I take an education loan to fund his higher studies and also get a tax deduction on the interest paid on such loan? 

Yes, you can fund his higher studies by availing an education loan. Also, you will be able to claim the interest paid on higher education loan as a deduction from your taxable income. The deduction can be availed for eight consecutive years from the year in which the repayment has started or until the interest has been fully paid, whichever is earlier. The loan can be taken for studies in India and abroad too. There is no restriction on the place of study. However, the loan should be taken from a bank or a financial institution only. The loans availed from friends or relatives do not qualify for any such deduction. All the provisions mentioned above are governed by section 80E of the Income Tax Act, 1961.

Also Read: Tax Query: TDS on rent not needed if NRI’s income is less than Rs 2.5 lakh

I rented out a flat in September 2018 after I got the possession of the property. However, I got it registered in April 2019. While I collected rent in FY19, I made a higher payment to the builder than the actual rent collected. Do I have to report such rental income since the property was not registered under my name then? Can I adjust the rent received against payment towards costs to the builder?

According to the provisions of income tax, you will be considered as the owner of such property once you have received the possession of the property. Even if the property is registered at a later date, the income earned or received between the period of ownership and actual registration will be taxable in your hands. 

The rental income earned by you between September 2018 and April 2019 will be taxed under  “Income from house property”. For computing the taxable rental income, you can avail specific deductions such as municipal taxes paid, a standard deduction of 30% and interest on housing loan. The deduction for any amount paid to the builder is not allowed for the income tax purposes. The same cost can be added to the acquisition cost of the house property, provided you have proper documentation to prove such cost.

For any clarifications/feedback on the topic, please contact the writer at komal.chawla@cleartax.in