Section 80E -- Interest on Loan for Higher Education can grant you Tax Benefit

CA Maneet Pal
09810774806
http://www.capasricha.com/

Section	Quantum Of deduction	Conditions
Section 80E	Amount paid during PY towards interest. Starting from the assessment year the assessee starts paying the interest, up to 8 assessment years or till the interest is paid whichever is earlier.	Must be an Individual. Loan from a financial or charitable institution.  For higher education. Amount should be paid from his taxable income.

Since education is very important to succeed in life. But higher education can be hard on the pocket of many and probably to the majority of the population. To ease this burden there are various financial institutions providing loans for the pursuing higher education. The Income Tax Act 1961 provides for deduction under this section.

Essential conditions for claiming this deduction:

1)      The deduction is available only to individual assessee.

2)      The individual must have taken a loan from (i) any financial institution or (ii) any approved chartable institution.

3)      The loan must have been taken for pursuing higher education. Such education must be of assessee himself or any of his relatives.

4)      The deduction shall be allowed only in respect of any sum paid by him, in the previous year by way of interest on such loan.     

5)      Such amount should be paid out of his income chargeable to tax.

Quantum of Deduction:

The amount paid during the previous year towards interest. Deduction shall be allowed for 8 assessment years starting from the assessment year in which the assessee starts paying the interest on loan, or until the interest thereon is paid by the assessee in full, whichever is earlier. The entire interest can be claimed as a deduction. There’s no limit to this deduction.

The term ‘Higher Education’ means:

Higher education means full time studies for any graduate or post graduate course in engineering, medicine, management or for a post-graduate course in applied sciences or pure sciences, including mathematics or statistics. From 2010-2011 assessment year the government has included all courses from various streams, which comprise of both regular and vocational studies.

The term ‘Relatives’ mean:

Relative in relation to that individual means the spouse and children of that individual.

The term ‘Financial institution’ means:

Any financial institution which the Central Government may, by notification in the Official Gazette, specify in this behalf; or a banking company to which the Banking Regulations Act, 1949 applies.

The icing factor:

Say you’ve consumed the whole of the limit of the Section 80C; still you can use this section to further gain tax benefit. Which would mean your liability to pay tax will be reduced as the interest on loan will be deductible from your taxable income.

Odds of Interpretation: Human intervention required for taxing a payment as ‘fees for technical services’

CA Maneet Pal Pasricha

09810774806

capasricha@gmail.com

www.capasricha.com

Telecom industry in India is suffering from the tussle between the odds of two interpretations. In recent time’s payments for various types of technology-related transactions has been a subject matter of disagreement between taxpayer and income tax department. Telecom industry make payment’s to companies like MTNL and BSNL for availing inter-connectivity ports. These interconnectivity ports come in use when a caller make’s a call from one network (say Airtel) to another network (say Vodafone) i.e., subscribers which fall outside the specified circle of the Taxpayer, then these calls are necessarily to be routed through national long distance telecommunication carriers viz., MTNL and BSNL, which provide interconnection between the two networks.

According to the provisions of Income-tax Act “The Act”, providing any managerial, technical or consultancy services for any consideration is termed as Fees for Technical services “FTS”. Where a payment qualifies as FTS, it is subject to withholding tax i.e tax deducted at source.

Now the point of disagreement is that whether payments made by the Taxpayer to BSNL/MTNL for availing the interconnection/port access services should be subject to withholding tax as FTS.

In respect of this disagreement Delhi High Court had decided the issue in favor of the taxpayer on the basis that these services do not involve any “human interface”. The HC approved the Taxpayer contention that the term ‘technical’ needs to be interpreted in light of the words ‘managerial’ and ‘consultancy’, as it is sandwiched between in the definition of ‘FTS’ under the Income Tax Law. Assorted judgements of the various high courts and tribunals have taken a view that the expression ‘technical services’ has to be read in the narrow sense by following the rule of “Noscitur a sociis” i.e., questionable meaning of a word can be derived from its association with other words.

Thus an element of human intervention is essential for providing managerial and consultancy services and consequently, by applying a similar equivalence, the term ‘technical’ would also have to be construed as involving a human element. This judgement gave any new perspective to the definition of Fees for technical services.

On bringing the matter before the Honourable Supreme court, the court first analysed the evidence’s to construct that human element is involved in the process of interconnectivity ports. But unfortunately or fortunately supreme court found no expert evidence from the tax authority’s to show how human intervention takes place in the present process blueprint. Expert evidence is required to decide whether there is any manual intervention involved during the traffic of such calls. Thus, whether at any stage, any human intervention is involved needs to be examined based on the technical evidence from technical experts. This would enable appellate authorities to decide the legal issue based on factual basis.

Therefore, keeping in mind the importance of the case and the implication of the issue, the matter was remitted to the tax Authority to decide the issue after examining technical experts within a period of four months. Such experts would be cross-examined. The taxpayers are also at liberty to examine the experts and adduce any other evidence. Till such time, the tax administrative authority was asked to issue directions to all its officers that in such cases, the Tax Authority would not proceed against other taxpayers only on the basis of agreements placed before them. Once the issue is settled, the tax authority would be able to levy both interest and penalty on such transactions based on the outcome of the issue.

On remitting the matter to the tax authority to determine the element of human intervention, the SC appears to have acknowledged the fact that human intervention is necessary for a technical service to qualify as FTS.

This interpretation should be of great relevance to telecom companies because when it comes to interconnectivity port charges, the telecom companies need to pay not only to domestic companies but also to the foreign companies for such services. The telecom companies pays interconnectivity charges to domestic companies for providing national long distance calls and similarly for providing International calls services they make some payment to foreign companies like AT&T etc. In addition, number of India’s tax treaties also uses a similar definition for FTS. Therefore for such cross-border technology related payments the issue of determining the applicability of withholding tax on cross-border service fee payments become of huge importance.

Now the telecom companies eagerly wait for the judgement day on the matter. The faith of the matter is in the hands of technical experts. In end, we should hope that our technical experts don’t suffer with any odds of engineering view’s like we suffer from odds of interpretation in income tax act.