A Brief synopsis on Export Oriented Units

Brief Highlights about EOU

An EOU is basically an Export Oriented units which can be set up in the declared ‘warehouse stations’ in India. There are almost 300 such warehouse stations. EOU units are very closely connected with Customs Law and Excise Law. Besides, Foreign Trade Policy deals with EOUs at larger extent. Further, Income Tax Act and Foreign Exchange Management Act are also very relevant for EOU units. EOU not availing direct tax benefit are entitled to Duty Credit Scrip of VKGUY, FMS, FPS and SHIS.

Setting Up of a new EOU

Initially the unit have to prepare detailed Project Report as these forms the basis of sanction of the scheme. The NFE should be positive. Thereafter, the unit is required to obtain approval from the Unit Approval Committee (UAC) for automatic approval scheme and from Board of Approval (BOA) for schemes other than under automatic approval scheme. The afore-said authorities shall issue Letter of Approval after which a Legal Undertaking has to be submitted and Green Card shall be obtained from him. A Licence has to be obtained u/s 58 and 65 of the Customs Act. B-17 bond has to be submitted with solvency certificate or bank guarantee. CT-3 certificates have to be obtained.

Requirements of Positive NFE

The units should have a positive NFE (Net Foreign Exchange) which is A-B where A is FOB value of Exports and B is the sum total of CIF value of all imported inputs and capital goods and all payments (like commission, royalty, fees, dividends, interest on borrowings) made in FOREX. It is pertinent to note that the goods which are purchased on high sea sale basis in Indian rupees will be considered as imported goods for the purpose of calculation of NFE, even if payment is made in Indian Rupees as mentioned in Para 14 of MF(DR) circular No. 12/2008-Cus dated 24-07-2008. NFE Earning shall be calculated in a block of five years starting from commencement of production. Further, certain other aspects as mentioned in Para 6 of HBP Vol. 1 have to be kept in mind.

Failure to achieve NFE: It is worthwhile to mention that if NFE is not achieved then the unit is liable to pay duty and interest in proportion to default will be payable as per MF(DR) Circular No. 29/2003-Cus dated 03-04-2003. Further, if the NFE is not achieved then the EOU is not allowed to exit. A plethora of judicial pronouncements have dealt with the issue of failure to achieve NFE by EOU some of which is mentioned here-in-below for ease of reference:

a)     In case of Natural Stone Exports (2006) 198 ELT 440, it has been held that duty is payable only at the time of de-bonding even in case of failure to achieve NFE as EOU is a warehouse.

b)     In case of Suvarna Aqua Farm (2005) 190 ELT 284 it has been held that penalty cannot be imposed if export obligation was not fulfilled as the circumstances were beyond the control of the assessee.

c)      In case of Noel Agritech (2011) 273 ELT 306, it has been held that in case of failure to meet export obligation, duty is payable but confiscation of capital goods is not warranted.

Procurement of Inputs & Capital goods

An EOU is entitled to procure inputs and capital goods without payment of duty. Thus, All India Rate of Duty Drawback cannot be taken by an EOU. Further, the EOU can procure inputs or capital goods under CT-3 from the manufacturer of such goods without payment of duty. Otherwise, the EOU units can procure goods on payment of duty which can be used for DTA sales by an EOU unit or refund can be claimed under Rule 5 of CENVAT Credit Rules, 2004 for the inputs &/or input services. The matter is no longer res integra as it has been held in a plethora of cases that Rule 5 of CCR’04 is also available to an EOU.

Bonding Period for EOU

The EOU units are the bonded warehouses. The bonding period for an EOU is three years for raw materials, consumables & spares and five years for capital goods. Bonding period means that the goods must be used by the EOU within the bonded period. The same can be extended by the Commissioner without any upper limit if the same is not likely to deteriorate. Warehouse licence is given to EOU for a period of five years which has to be renewed from time to time.

Exit of EOU (De-Bonding)

An EOU can opt out of the scheme only with the approval of Development Commissioner as per Provisions of para 6.18 of FTP. Exit from EOU is not possible in case positive NFE is not achieved under Advance Authorisation scheme.

The requirement of positive NFE is mandatory in case EOU is applying for EPCG after exiting as NOC is required to be obtained from the Development Commissioner. Export obligation for a unit which converts from EOU/SEZ scheme to EPCG would be same as available to direct EPCG authorisation holder, i.e., 8 or 12 years from the issue of EPCG authorisation. Further, it has been clarified that if a standalone EOU unit converts into EPCG scheme, the additional export obligation shall be equivalent to six/eight times of depreciated value. Further, if the unit of a Firm/company opts to de-bond then the average export obligation in respect of firm/company (other than debonding unit) shall remain unchanged. For the debonded unit, the export obligation shall be fixed by excluding the exports made by such unit from the exports of the company/firm.

Unit can be ordered to be exited if it fails to achieve NFE or other requirements. Duty on raw material, capital goods is payable at the time of debonding. It is pertinent to note that in case of Premier Granites Limited (2000) 122 ELT 220,it has been held that duty demand can only be raised after the order for exit has been issued. Further, in case of Trans Freight Containers (2012) 277 ELT 168, it has been held that even if export obligation is not fulfilled, duty can be demanded on inputs lying in stock at the rate of duty prevalent at the time of payment of duty, on original value of importation. Duty cannot be demanded on consumed inputs and final products were exported. Further, depreciation on capital goods (CG) is available even if export obligation was partially fulfilled.

It is worthwhile to mention that Hon’ble CESTAT in case of Tecumseh Products (2011) 269 ELT 401 has held that CENVAT Credit available with an EOU can be transferred to DTA unit on de-bonding. New IEC number will have to be taken at the time of exit.

Customs duty will have to be paid on unused imported raw material and consumables lying in stock at the time of exit at the rates as on date of clearance. In respect of excisable goods, excise duty is to be levied without depreciation at rates as on duty of clearance –Pune Commissioner of Customs PN 131/99 dated 09-09-1999. At the time of exit, the unit has to pay customs duty on the imported machinery on the basis of depreciated value or transaction value – whichever ishigher. The depreciation rate is 4% per quarter in the first year, 3% per quarter in the second year and third year, 2.5% per quarter in the fourth and fifth year and 2% per quarter for subsequent years. The rates of depreciation for computer or computer peripherals are different which can be referred in Para 6.36.2 of HBP Vol. 1.

It is pertinent to note that if the unit is unable to achieve positive NFE, then the duty forgone at the time of import shall be paid on such goods in proportion to the non-achieved portion of NFE in terms of para 3 of MF(DR) Circular No. 12/2008-Cus dated 24-07-2008. In case of Solitaire Machine Tools (2003) 152 ELT 384, it has been held that depreciation should be allowed upto date of payment of duty and not only till date of application for de-bonding. In case of Business Process Technologies (2010) 249 ELT 248, it has been held that rate of duty is at the time of filing ex-bond bill of entry for de-bonding and not rate prevalent at the time of procurement of goods.

- See more at: http://taxguru.in/custom-duty/synopsis-export-oriented-units.html#sthash.efnBveQU.dpuf

Aug 14 2014 New procedure for DIN application & reasons for rejection - See more at: http://taxguru.in/company-law/procedure-din-application-allotment.html#sthash.5cndSUQZ.dpuf

PROCEDURE OF OBTAINING DIN

Section and Rule Number(s)

eForm DIR-3 is required to be filed pursuant to Section 153 of the Companies Act, 2014 & Rule 9(1) of the Companies (Appointment and Qualification Of Directors) Rules, 2014 which are reproduced for your reference.

Section 153:

Every individual intending to be appointed as director of a company shall make an application for allotment of Director Identification Number to the Central Government in such form and manner and along with such fees as may be prescribed.

Rule 9(1):

Every individual, who is to be appointed as director of a company shall make an application electronically in Form No. DIR-3, to the Central Government for the allotment of a Director Identification Number (DIN) along with such fees as provided in the Companies (Registration Offices and Fees) Rules, 2014.

Common Reasons for Rejection of DIN Application - 

Before you fill-in application for DIN -Please remember following common causes of REJECTIONS

• Applicant’s name and father’s name mentioned in abbreviated form. – The Name should be expanded even if the ID proof contains the name in abbreviated form.
• Mismatch in the Name and Father’s Name in DIN form with the ID (Identity) proof enclosed. – Any mismatch in Name, including spelling mistake, may lead to rejection of application. Minor spelling deviations in the father’s name may be accepted, if such deviations do not materially impact the name.
• Prefixes like Mr. / Ms. / Kumari / Shri etc. used in the applicant’s name.
• Residence proofs like: Bank Statements, Electricity Bill, Telephone Bill, Utility bills etc. submitted are older than 2 months of submitting the application for verification OR such documents are in the name of some other person, for example father or spouse.
• The supporting documents are not duly attested i.e. Name, Designation, Membership/ Practicing certificate number etc. are not clearly indicated. – If the seal/ stamp does not contain membership/ practicing certificate number, same may be recorded by hand.
• Passport / Driving License / Identity proofs etc attached are expired. – Only such documents which are currently valid should be attached.

Purpose of the e-form

Any person intending to become the director in a company is required to make an application to MCA for allotment of a unique identification, namely, Director Identification Number (DIN) through this e-Form.

♠ Any person intending to apply for DIN shall have to make an application in e-Form DIR-3 and should follow the following procedure:

♠  Download Form- DIR-3 from MCA Portal by given link.

http://www.mca.gov.in/MinistryV2/Download_eForm_choose.html

♠ Fill the given Particulars in e-form.

♠  Attach the photograph (JPEG).

♠  Attach scanned copy of supporting documents (Proof of Identity, Proof of Residence of Applicant and DIR-4): List Attached Below

♠  Physical documents are not required to submit at DIN cell.

♠  The e-Form shall have to be digitally signed and shall be uploaded on MCA21 portal.

♠  Form DIR-3 is mandatorily to be signed by an Applicant and a practicing professional or secretary (who is a member of ICSI) in whole time employment or the Director of the existing company.

♠  The applicant is required to get himself/herself registered on the MCA21 Portal to obtain login id, which is necessary for payment of the fees or the Professional is required to get himself/herself registered on the MCA21 Portal to obtain login id, which is necessary for payment of the fees

♠  After obtaining the login-id, Login to the MCA21 portal and click on ‘e-Form upload’ link available under the ‘e-Forms’ tab for uploading the e-Form DIR-3.

♠  Upon upload, pay the fees for e-Form DIR-3.

♠  Only electronic payment of the fees shall be allowed (I.e. Net banking / Credit Card). No challan payment will be accepted under revised procedure of DIN allotment.

♠  e-Form DIR-3 will be processed only after the DIN application fee is paid.

♠  Approved DIN shall be generated in case the form is being signed by a practicing professional and details have not been identified as potential duplicate. Provisional DIN shall be generated in case form is signed by secretary in whole time employment or Director of existing company and details have been found as potential duplicate. A suitable informational message and an email shall be provided to the user that the DIN shall be approved after due verification by the DIN cell.

♠  Processing of e Form DIR-3.

♠  In case, DIR-3 gets certified by the professional (i.e. CA (in whole time practice)/ CS (in whole time practice)/ CWA (in whole time practice)/, the DIN will be approved by the system immediately online (in case it is not potential duplicate).

♠  Post-approval changes in particulars of Form DIR-3.

♠  If there is any change in the particulars submitted in e-form DIR-3, applicant can submit e-form DIR-6 online. For instance in the event of change of address of a director, he/ she is required to intimate this change by submitting e-form DIR-6 along with the required attested documents.

FAQ’s

1. Why to get e-form DIR-3 attested from Professional?

Answer:

• If eForm is digitally signed by a Chartered Accountant (CA) or Cost Accountant (CWA) or Company Secretary (CS) (in whole time practice) then the supporting documents attached shall be self-attested by the applicant.

• If eForm is digitally signed by secretary (who is member of ICSI), in whole time employment or director of existing company then the supporting documents attached shall be either self-attested by the applicant or duly attested by either Public Notary or a Gazette Officer of a Government. {The attesting authority must indicate the following while attesting the documents:- (i) Signatures; (ii)Name in full in Capitals; (iii) Registration No.; and (iv) Seal/ Stamp. }

• In case, the director/ designated partner is residing outside India, then the attached supporting documents should be attested by the Consulate of the Indian Embassy, Foreign public notary. In case of director, supporting documents can also be attested by Company secretary in full time employment /CEO / Managing director of the Indian company in which he / she proposed to be a director.

2. List of Mandatory Attached Documents:

The following are the mandatory attachments to be filed in all cases:

A. Proof of Identity of Applicant

• In case of Indian nationals, Income-tax PAN is a mandatory requirement for proof of identity.
• In case of foreign nationals, passport is a mandatory requirement for proof of identity.
• Proof of identify enclosed with e-Form DIR-3 should also contain the date of birth of the applicant and the same should match the date of birth filled in the application form. In case the proof of identify does not indicate the Date of Birth then additional proof of Date of Birth, duly certified/ attested, should be attached.

B. Proof of residence of applicant

• Address proofs like: Passport, Election (Voter Identity) Card, and Ration Card, Driving License, Electricity Bill, Telephone Bill or Aadhar shall be attached and should be in the name of applicant only.
• In case of Indian applicant, documents should not be older than 2 months from the date of filing of the e-Form.
• In case of foreign applicant, address proof should not be older than 1 year from the date of filing of the e-Form

C. Copy of verification by the applicant as per e-Form No. DIR-4- DIR-4 shall contain the Name, Father’s name, date of birth and text of declaration and physical signature of the applicant)

In case of proofs which are in languages other than Hindi / English, the proofs should be translated in Hindi / English from professional translator carrying his details (name, signature, address) and seal. In the case of foreign nationals, translation done by the notary of home country is also acceptable.

Any other information can be provided as an optional attachment(s).

Process for Conversion Of Private Limited Company Into LLP - See more at: http://taxguru.in/company-law/process-conversion-private-limited-company-llp.html#sthash.KraNTcYI.dpuf

AS ALL OF US AWARE THAT COMPANIES ACT, 2013 HAS CAME INTO FORCE FROM 01^ST APRIL, 2013.

LET’S FIRST DISCUSS BENEFITS OF LLP:

1. TAX BENEFITS

The Most Important Reason for conversion of a company into an LLP is on the tax front.

• LLP are taxed like general partnership firm, they are exempted from surcharge
• Currently, the Income-tax Act, 1961, provides for payment of minimum alternate tax (MAT) as also for payment of dividend distribution tax (DDT) by companies. An LLP should not be liable to pay DDT.
• No Capital Gains tax shall be charged on transfer of property from Company to LLP

2. MINIMAL COMPLIANCE LEVEL & COST SAVING:

After commencement of Companies Act 2013 cost of maintenance is increase in case of Companies. Because there is no need of compliances related to meetings and maintenance of huge statutory records So LLP help to save cost..

3. NO LIMIT ON NUMBER OF SHAREHOLDERS/PARTNERS:

An LLP can have unlimited number of partners. No Limit of Maximum No. of Partners.

4. NO STAMP DUTY:

All movable and immovable properties of the company automatically vest in the LLP. No instrument of transfer is required to be executed and hence no stamp duty is required to be paid.

5. OTHER BENEFITS:

• Easy to manage & run.
• Less Government Intervention
• Easy to dissolve or wind-up
• Audit requirement only in case of contributions exceeding Rs. 25 lacs or  turnover exceeding Rs. 40 lacs.
  

LIMITATIONS of LLP:

• Any act of the partner without the other partner, may bind the LLP.
• Under some cases, liability may extend to personal assets of partners.
• Cannot raise Money from Public.

CHECKS FOR CONVERSION OF COMPANY INTO LLP

• In case of conversion of Private Limited Company into LLP, all the shareholders of the Company to be partners in the LLP. No one else can be partner in LLP
• Also there will be NO SECURITY INTEREST subsisting or in force at the time of application in the assets of the Company.
• Every Designated Partner is required to obtain a DIN from the Central Government.
• All the E-FORMS which are required for the purpose of incorporating the LLP are filed electronically through the medium of Internet, it is not possible to sign them manually. Therefore, for the purpose of signing these forms, the Designated Partner of the proposed LLP needs to obtain a Digital Signature Certificate (DSC) from government recognized DSA’S.
• Whether up to date Income-tax return is filed under the Income-tax Act, 1961.
• Whether any prosecution initiated against or show cause notice received by the company for alleged offences under the Companies Act, 1956.
• Whether any proceeding by or against the company is pending in any Court or Tribunal or any other Authority.
• Whether any conviction, ruling, order, judgment of any Court, Tribunal or other authority in favour of or against the company is subsisting.
• Whether any clearance, approval or permission for conversion of the company into limited liability partnership is required from anybody/ authority. etc

PROCESS OF CONVERSION OF COMPANY INTO LLP

A Private Company may convert into LLP in accordance with the procedure prescribed in the Third Schedule. Process as given below:

1. OBTAIN DIN:

 Earlier there was Concept of DPIN, which has been abolished therefore. Now obtain DIN for those designated partners who don’t posses DIN already. (Process for obtaining Din given in my earlier Article).

2. BOARD MEETING:

• Call meeting of board of Director.
• Pass Resolution for Conversion of Company into LLP.
• Pass Resolution to authorize any director to Apply for Name of LLP.
  

3. APPLICATION FOR NAME AVAIBILITY:

File e-form INC-1 with ROC.

Attachments: Board Resolution Board resolution passed by the Company approving the conversion into LLP shall be attached with the aforesaid form

4. Obtain name Approval Certificate from ROC.

5. DRAFTING OF LIMITED LIABILITY PARTNERSHIP AGREEMENT:

Contents of Agreement are:

• Name of LLP
• Name of Partners & Designated Partners
• Form of contribution
• Profit Sharing ratio
• Rights & Duties of Partners
• Proposed Business
• Rules for governing the LLP

It is not necessary to have the LLP Agreement signed at the time of incorporation, as the details of the same needs to field in eform 3 within 30 days of incorporation but in order to avoid any dispute between the partners as to the terms & conditions of the agreement after the conversion into LLP.

6. FILLING OF INCORPORATION DOCUMENTS:

File E-Form- 2 with ROC along with following ATTACHMENTS:

• Proof of Address of Registered office of LLP.
• Subscription sheet signed by the promoters.
• (Notice of Consent & Appointment of Designated Partners with their personal details)
• Detail of LLP(s) and/ or company(s) in which partner/ designated partner is a director/ partner

7. FILLING OF APPLICATION FOR CONVERSION:

File E-FORM- 18 with ROC along with following ATTACHMENTS:

• Statement of shareholders.
• Incorporation Documents & Subscribers Statements in Form 2 filed electronically.
• Statement of Assets and Liabilities of the company duly certified as true and correct by the auditor.
• List of all the Secured creditors along with their consent to the conversion.
• Approval of the governing council (In case of professional private limited companies)
• NOC from Income Tax authorities and Copy of acknowledgement of latest income tax return.
• Approval from any other body/authority as may be required.
• Particulars of pending proceedings from any court/Tribunal etc.

1. After all formalities and filings been complied with by the applicants and approved by the Ministry, REGISTRAR OF LLP TO ISSUE A CERTIFICATE OF REGISTRATION in form no. 19 as to conversion of the LLP. The Certificate of Registration issued shall be the conclusive evidence of conversion of the LLP.

9. FILLING OF E-FORM-3:

This form provides information in respect to the LLP Agreement entered into between the partners.

ATTACHMENT: LLP Agreement

10. CERTIFICATE OF INCORPORATION AS LLP FORM ROC.

11. FILLING OF E-FORM-14: (INTIMATION TO ROC)

After Receiving Incorporation Certificate Limited liability partnership to file within 15 (fifteen) days of the date of registration, information to the concerned Registrar of Companies with which it was registered under the provisions of the Companies Act, 2013 (1 of 2013) about the conversion and of the particulars of the limited liability partnership in eForm 14 within 15 days of conversion into LLP.

ATTACHMENTS OF E-FORM 14

• Copy of Certificate of Incorporation of LLP formed.
• Copy of incorporation document submitted in Form 2

STEPS OF CONVERSION:

S. NO.	PARTICULAR	REQUIREMENT
1.	Apply for Din No.	e-form DIR-3 with ROC-Process given in my earlier article
2.	Call BM- to change name – ending with word LLP
3.	File Form for Name approval with work LLP	E-form INC-1(Attached Board Resolution)
4.	ROC issue name approval certificate
5.	Incorporation documents with registrar	File e-form -2 ( Attached Incorporation Documents)
6.	Application of Conversion	e-form – 18(Attached Given Below)
7.	LLP Agreement- within 30 days of approval of above forms	e-form- 3(Attached LLP Agreement)
8.	If incorporation certificate is issued by department; then
9.	Intimation of Conversion to Registrar	e-form-14(Attached Given Below)

Amendment in the companies (Meetings and Board of powers)rules, 2014 dated August 14, 2014 - See more at: http://taxguru.in/company-law/amendment-companies-meetings-board-powersrules-2014-dated-august-14-2014.html#sthash.B5WXzHkU.dpuf

Amendment in the companies (Meetings and Board of powers) rules vide Notification dated 14.08.2014 by Companies (Meetings of Board and its Powers) Second Amendment Rules, 2014. 

List of amendments	Date of issue	Changes/Additions
First amendment (Section 177 and Section 178 have been covered)	June 12, 2014	In rule 6- Committees of the Board Applicability- Listed and Public companies Insertion- “Provided that public companies which were not required to constitute Audit Committee under section 292A of the Companies Act, 1956 (1 of 1956) shall constitute their Audit Committee within one year from the commencement of these rules orappointment of independent directors by them, whichever is earlier : Provided further that public companies covered under this rule shall constitute their Nomination and Remuneration Committee within one year from the commencement of these rules or appointment of independent directors by them, whichever is earlier.”
Second amendment	August 14, 2014	A. In rule 3 (6)- Meetings of Board through videoconferencing or other audio visual means Applicability- all companies Change- With respect to every meeting conducted through video conferencing or other audio visual means authorised under these rules, the scheduled venue of the meeting as set forth in the notice convening the meeting, which shall be in India, shall be deemed to be the place of the said meeting and all recordings of the proceedings at the meeting shall be deemed to be made at such place B. In rule 4 (1)- Matters not to be dealt with in a meeting through video conferencing or other audio visual means Change-“ (1) The” has been replaced by “The” C.  In rule 4 (1) (iv)-  “the Audit Committee Meetings for consideration of accounts” has been replaced by “the Audit Committee Meetings for consideration of financial statement, if any , to be approved by the Board under sub-section (1) of section 134 of the Act” D. In rule 15 (3)-Contract or arrangement with a related party Applicability- all companies Change- please refer below table

 In rule 15 (3) -Contract or arrangement with a related party under section 188 of the Act

Applicability- all companies

1. Change in the Limits

S. No.	Current	Now, post August 14, 2014
(a)	Sale, purchase or supply of any goods or materials directly or through appointment of agents exceeding 25% of the annualturnover	Sale, purchase or supply of any goods or materials directly or through appointment of agents exceeding 10% of the turnover or 100 crore, whichever is lower
(b)	Selling or otherwise disposing of, or buying, property of any kind directly or through appointment of agents exceeding 10% of net worth	Selling or otherwise disposing of, or buying property of any kind directly or through appointment of agents exceeding 10% of net worth or 100 crore, whichever is lower
(c)	Leasing of property of any kind exceeding 10% of the net worth or exceeding 10% of turnover	Leasing of property of any kind exceeding 10% of the net worth or exceeding 10% of turnover or 100 crore, whichever is lower
(d)	Availing or rendering of any services directly or through appointment of agents exceeding 10% of the net worth	Availing or rendering of any services directly or through appointment of agents exceeding 10% of turnover, or 50 crores, whichever is lower

It has now clarified that the limits specified above (a) to (d) shall apply for transaction (s) to be entered into either individually or taken together with the previous transactions during a year.

1. The following has been removed from the rule

“(i) a company having a paid-up share capital of ten crore rupees or more shall not enter into a contract or arrangement with any related party; or”

Deduction on children’s education u/s. 80C & 80E

The cost of educating our children is rising consistently. It’s a matter of concern for all of us. One relief is the tax benefit provided for spending on children’s education. The Income Tax Act provides a direct deduction on account of fees paid for the education of dependent children. The act also provides for deduction on account of interest on loans taken for higher education of children.

Under Section 80C on Tuition Fees Paid

This deduction in respect of school fees is covered under Section 80C of the I-T Act. A parent can claim a deduction of payment made for tuition fee to any university, college, school or any other educational institution.

The deduction on payments made towards tuition fee can be claimed up to Rs 100,000 (Limit Raised to Rs. 1,50,000/- from A.Y. 2015-16), together with deduction in respect of insurance, provident fund and pension.

But, there are certain conditions to get this. It can only be claimed in respect of two dependent children and for fees to an educational institution within India and, for tuition fee only. Payment as donation or development fee to an educational institution does not qualify.

The following are the deduction allowed under tuition fees

• Fees paid to regular educational institution irrespective of the class attended by the child.
• Payment of fees to play schools or creches will be allowed as deduction.
• Fees for admission are excluded from amounts eligible for deduction.
• The deduction is allowed only for two children.
• Deduction is available of paid basis.
• Adopted Child’s tuition fees is also eligible for deduction

The following are the deduction not allowed under tuition fees

• Deduction is not allowed for private tuition, coaching center.
• University College School or other educational institution must be situated in India. It can be affiliate to any foreign university.
• A late fee is not eligible for deduction.
• Development fees or donation is not eligible.
• Payment of fees for overseas education is not allowed.
• Fees for admission are excluded from amounts eligible for deduction.
• Transport charges, hostel charges, Mess charges, library fees charges incurred for education are not allowed
• Spouse’s tuition fees is not allowed for deduction.

Under Section 80E on Interest paid on Education loan

You can also get the benefit of direct deduction on the interest paid for a loan taken for the purpose of higher education. This is available under Section 80E of the I-T Act. This benefit can be claimed for a loan taken for education of yourself, your spouse, your children and the child for whom you are a legal guardian. It can be claimed for eight years in a row, beginning from the year when the interest payment starts.

As the benefit can be claimed by the parent as well as the child, the person taking the education can start claiming this deduction once he starts earning and paying the interest himself. There is no cap on the amount up to which the deduction can be claimed.

The loan in this regard can be taken from any financial Institution or charitable institution recognised by the central government. It can be claimed on a loan taken for education anywhere in the world.

So if you are going to take a loan on education keep in mind these factors to avail the tax benefits:-

1-These deduction is available only to individual and not for H.U.F.

2-Deduction amount-The deduction amount is only the interest paid on the loan of higher  studies and there is no limit. You can get tax benefit on entire amount of interest paid but not the PRINCIPAL.

3-Deduction only will be available if interest is paid out of tax chargeable income.

4-Deduction only be available if the loan is taken from financial institutes or approved charitable institutes. Loan taken by family or relatives not included.

5-Loan should be taken for higher studies means any full time course of graduate or post graduate course. After +2 full time course would be eligible for it.

6-Deduction available only to self or dependent like spouse & children. From A.Y 2010-11 Relative also includes student for whom the individual is the legal guardian

7. Deduction period: – Deduction shall be allowed in computing the total income in respect of the initial assessment year* and seven assessment years immediately succeeding the initial assessment year or until the interest is paid by the assessee in full, whichever is earlier.The maximum tenure to get the tax benefit is 8 years.

8-The study can be anywhere in the world and not necessary to be in India.

(Republished with amendments)