Interesting Case Laws | I-T law doesn't specify that higher education must only be in India

I-T law doesn't specify that higher education must only be in India

In good news for parents whose children study overseas or plan to do so, the Pune Income-tax Appellate Tribunal has held that higher education abroad is no bar for claiming interest on educational loans for tax deduction.

A deduction for interest paid on educational loans taken for higher studies will be allowed from the taxable income of the parent, who has taken the loan and is paying an interest, even if the child is studying overseas.

Deductibility of interest on educational loans, if the education is undertaken overseas, has often been a ground for dispute during tax assessment. Section 80E of the I-T Act provides that parents are eligible for claiming deduction of interest paid by them on loans taken for their children's higher education.Such a loan must be taken from financial institutions or banks, or from approved charitable institutions. The term “higher education“ has been defined in the section as: “Any course of study pursued after passing the senior secondary examination (SSE) or its equivalent from any school, board or university recognised by the Central government, state government, local authority or any recognized authority .“

“This section does not specify that higher education must be undertaken by the student in India or that the overseas course must be approved by authorities in India. The only requirement is that such higher education should be undertaken by the student after passing SSE or its equivalent from a recognized institution in India,“ says Parizad Sirwalla, tax partner, KPMG.

Even in this case of Nitin Muthiyan, which came for hearing before the Pune tribunal, he tax officer had held that deduction under Section 80E is al owable only in cases of higher education pursued in India at approved educational institu es. He, thus, disallowed the cla m of interest of Rs 73,125 made by the taxpayer whose son was pursuing a course at George Washington University , USA. The son had completed his Bachelor of Engineering in Electronics from the Pune University before pursuing further studies in the US. At the first stage of appeal, the Commissioner of I-T (Appeals) upheld the action of the tax officer.

The taxpayer then filed an appeal with the ITAT and obtained a favourable order. The ITAT in its order, which has be en recently released, observed: “Provisions of Section 80E do not contain any stipulation that the higher education should be pursued only in India. If the intent... was that education should be pursued in India to avail of the interest deduction, it would have stated so. Further, the taxpayer's son had completed SSE or its equivalent, as is required, before pursuing studies overseas.“ Thus, the ITAT allowed the interest deduction claim made by the father during 2008-09.

“The ITAT's decision is wel come, particularly in light of the spiralling cost of overseas education, and more and more Indian students opting for higher studies overseas. Should parents wish to claim an interest deduction under Section 80E, they must ensure that the educational loan is for their child's higher studies and the child has passed at least SSE or equivalent exam in India. In terms of applicability of the decision, an ITAT's decision is binding within its jurisdiction, but carries precedent value in similar disputes for other jurisdictions, which are outside its purview,“ adds Sirwalla.

 

Source | Times of India | 2 December 2015

Regards

Pralhad Jadhav

Khaitan & Co