Tax Benefit on Education Loan (Sec 80E)

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An education loan can not only fund your higher studies but also help save tax. The interest paid on the education loan can be claimed as deduction, as per Section 80E of the Income Tax Act, 1961. However, you can claim deductions only for the interesting part of the EMI.

Who can claim this deduction:

The deduction under section 80E can only be claimed only by individuals. This deduction cannot be availed by HUFs or any other taxpayer. The education loan must be taken for the higher education of self, spouse, dependent children or a student for whom the taxpayer is a legal guardian. That’s why parents can claim this deduction without any hassle, for the loan taken for the higher education of their children.

From where the loan should be taken:

The loan must be from a recognized financial institution or an approved charitable institution. Repayment of Loan from your employer, a relative or a friend won’t be eligible for tax benefit under Section 80E.

The purpose of the loan:

In order to claim tax deduction, the loan should be taken for higher education, the loan can be taken for higher education in abroad or in India. Higher studies include all the fields of study pursued after passing the senior secondary examination or any equivalent exam. It includes both the Vocational courses as well as the regular courses.

As per Section 80E of the Income Tax Act, “higher education” means any course of study pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university authorized by the Central Government or State Government or local authority or by any other authority authorized by the Central Government or State Government or local authority to do so.

Deduction Amount:

The deduction allowed is the total interest part of the EMI paid during the financial year. Tax benefits are valid only on the ‘Interest’ and not the ‘Principal’ amount paid. This deduction for Section 80E fall above and beyond the Rs. 1,50,000 deduction permitted under Section 80C. There is no upper limit set as such as per which the rate of interest transforms as deductions. To gain tax benefits on educational loan, you should inform your firm’s HR Department  or Accounts Department well in time so that lesser TDS is deducted from your pay. Otherwise, your money will get deducted and then you will have to claim it by filing for tax returns.

Period of Deduction:

The deduction on education loan can be claimed only once you start with the repayment and is available upto a span of eight years, or until the time the payment of interest in complete. Thus, if you repay the loan within a period of four years, then you can claim the deduction only for those four years.There is no provision for carry forward of this tax benefit. You can claim the tax benefit only for the interest paid during the previous year.

 

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  • Founder and Editor at "Knowledge Portal.co.in"

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