April 05, 2019
Every year, the cost of higher education is increasing, and not everyone can afford
this. This is the prime reason why one opts for an education loan. The mounting
cost of education and increasing awareness among youth are actually fuelling
the demand for such loans. Well, an education loan for higher studies not only
helps to manage your finances, but it can also save a lot on tax outgo. So, if
you have taken an education loan for higher studies, then according to section
80(E) of the Income Tax Act of India, 1961, you can claim for the tax benefit
against the entire interest paid. Well, the tax benefit is available only on
an education loan applied for higher studies, and applicable only on full-time
courses. However, the deduction is provided only on the interest part of the
EMI, and not on the principal part.
So, who can claim for deduction?
Only an individual who has applied for education loan can claim for deduction. The
loan should be taken for the higher education of self, for your children, your
spouse for whom the individual is a legal guardian.
For How Long Can You Avail Tax Benefit On Education Loans?
You can claim for deductions for a maximum period of 8 years, as the time duration
does not start from the date you take the loan, but from the year, in which you
avail the tax benefit from your income for the first time. Confused? Well, to
put it in another way, let’s say you start repaying the accumulated interest
amount for the first time from your taxable income in the FY 2018; then you can
enjoy the tax benefits for the immediate succeeding 7 years. Hence, you cannot
claim a deduction for the interest paid beyond 8 years. Hence, that’s why it
is always advisable that an education loan must be paid within 8 years.
Well, here we are listing out some important things that you should know about tax
benefits on education loan:-
- Tax benefit on an education loan can only be claimed, and enjoyed by the person
who has applied for it, even he or she is not the actual beneficiary. For
an instance, if your father has taken an education loan for your higher studies,
then the tax benefit can only be claimed by your father, and not you.
- Most of the lenders provide a moratorium period for repayment of principal amount,
so that you can complete your education peacefully. However, lenders charge
interest during that period. Hence, it is always advisable for a person to
pay the interest part first, so that you can claim deductions on the interest
- You should remember that tax benefit is only available on the interest amount,
and not on the principal repayment part. Unlike other loans, there is no
tax deduction on the principal repayment of an education loan.
- Many times, we have observed that some education loans do not qualify for tax.
The primary reason behind this is that they are not notified financial institutions.
Hence, it is always advisable to take a loan from a specified financial institution
which is notified by the tax department. In addition to this, loan taken
from your friends, employer, relatives, or any family friends, does not qualify
for tax deductions.
So, here we are wrapping up! Hence, section 80E allows a person to reduce the effective
burden of the interest amount through allowing deductions from your income, or
the income of parents. Hope this information has been helpful!