Education loans are getting increasingly popular. Mounting cost of study and increasing awareness about education loans are fuelling demand for such loans. According to Section 80E of the Income Tax Act, 1961, the interest paid on the education loan can be claimed as deduction. This special deduction is also allowed even for education loan availed for study abroad. Banks extend education loans for pursuing higher education in India or abroad where admission has been secured. Many banks offer a moratorium period for repayment of loan after the course is completed.
Student Loan Scheme offered by SBI, for example, offers a repayment period of up to 15 years after the course period with 12 months of repayment holiday.Read more ↓
“Due to increasing cost of higher studies, the requirement for a loan is somewhat inescapable. Section 80E allows a person to reduce the effective burden of interest burden through allowing deduction for interest costs from the income of parents or student himself/herself,” said Sandeep Sehgal, director of tax and regulatory at Ashok Maheshwary & Associates LLP.
5 Things To Know About Section 80E Tax Benefits On Education Loan
1) It should be noted that under Section 80E, the income tax benefit on education loan can only be claimed on the interest part of the loan. The principal part does not qualify for any tax benefit.
2) For calculating your taxable income for a particular year, the entire interest part of the loans repaid during that year can be deducted. There is no upper limit.
3) The income tax deduction on education loan is only available for up to eight years or until the payment of interest in full, whichever is earlier. For example, if you repay the loan within six years, you can claim deduction only till such period. Also, if your repayment period is ten years, you can only get tax benefits for eight years.
4) The income tax deduction available on education loan is allowed only if the education loan has been availed from any bank or any notified financial institution or any approved charitable institution. So if you want to avail tax benefits on education loan, check out if financial institution falls in that category.
5) Under Section 80E, the interest on the loan taken for higher education for self or spouse or children and the student for whom the person is legal guardian is allowed for deduction. Education loan taken for siblings or other relatives don’t qualify for Section 80E benefit.
Source by ndtv..