Take Educational Loan and avail Income Tax benefits

Introduction

Your education loan can lower you tax payouts. Yes, an individual Tax payer who has taken an Educational Loan, can claim deduction under section 80E of the Income Tax Act towards the interest amounts paid.

Extract from the Act

“80E. Deduction in respect of interest on loan taken for higher education — (1) In computing the total income of an assessee, being an individual, there shall be deducted, in accordance with and subject to the provisions of this section, any amount paid by him in the previous year, out of his income chargeable to tax, by way of interest on loan taken by him from any financial institution or any approved charitable institution for the purpose of pursuing his higher education…….”.continued

Analysis of the subject

Who is eligible for claiming deduction?

An individual tax payer can claim the benefit. Other persons such as HUF, firms and companies are not eligible.

What is the eligible amount?

The entire amount paid towards interest is deductible (There is no maximum limit) from the total income of the individual assesse.  Repayment of principal amount  and unpaid interest are not eligible for deduction.

Can loan be taken for any course?

Loan should be taken for pursuing full time (Which means part time courses are not eligible) of self or a relative. Relative includes spouse and children of individual or the student for whom the individual is the guardian.

What is the meaning of Higher Education?

“Higher education” means any graduate or post graduate course pursued after passing the Senior Secondary Examination.

Which loan is eligible for deduction?           

Loan taken from any financial institution or any approved charitable institutions are covered. (Which means loan from banks abroad, or loans from parents, employer, relatives or friends are not eligible)

What is the period of deduction?

Deduction can be availed for a total of eight years from the year in which the repayment of loan starts or till the principal and interest have been fully paid, whichever is earlier. (No deduction can be claimed beyond these eight years, even if the loan remains unpaid)

Other key aspects to be kept in mind:-

• Deduction under 80E can be claimed over and above the the limit of Rs. 1,00,000/- allowed under 80C.
• Higher studies/education can be pursued outside India. There is no condition that the course should be in India.
• Loan should be in the name of individual claiming deduction.
• The loan amount can also include not only the tuition fees or college fees but also other incidental expenses like hostel charges etc.

Conclusion

This is a benefit provided by the Indian government for promoting higher studies and hence all needy and eligible people should make use of the same which serves twin objective in providing their wards of higher education while at the same time reducing one’s own tax liability.

Incase of any query or doubts, kindly contact us at admin@simplifiedlaws.com. Written by Prathik N P
 

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