An education loan will not only provide you fund for your higher studies but also help you to save tax. When you take a loan for higher studies, under Section 80E of the Income Tax Act, 1961 deduction is allowed for Interest that you pay towards this loan. Several forms of higher studies are covered under Section 80E for claiming deduction. However, these courses must be pursued after completion of Senior Secondary Examination or its equivalent.
Things to know before claiming the deduction:
- The benefit on income tax can only be claimed on interest part of the loan. Tax benefit is not applied to the principal part.
- An individual can get tax benefit if an education loan is taken to support higher studies of self, children, spouse, or for someone of he/she is the legal guardian. So education loan doesn’t qualify for Section 80E if taken for siblings or other relatives.
- An individual can claim deduction only when the loan is taken in his/her name. An HUF or any other kind of tax payer is not qualified for this deduction.
- Education loan for study abroad also qualifies for Section 80E.
- Earlier, the deduction on education loan was available for students who are pursuing full time studies for higher studies. Later on vocational studies are also included in the list.
- To avail tax benefits on education loan, you have to inform your company’s HR or the accounts department so that less TDS is deducted from your salary. Otherwise, claim it at time of income tax return filing.
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The amount of deduction allowed and for how many years.
There is no fixed amount of interest you can claim as deduction under section 80E. The deduction is available only for a maximum period of 8 years or till the interest is paid. Therefore, the taxpayer should claim it before 8 successive years or earlier when the interest is fully paid.
A statement can be obtained from the Institution that has provided you the loan in order to identify the interest payout for each year. Deduction is not allowed towards Tuition Fees or the Interest that is paid on this loan. However, expense can be included as part of deductions under Section 80C when you pay Tuition Fees towards full time education of your children, spouse or self. Since the period of deduction is limited to 8 years and there is no fixed amount of deduction, it is prudent to wrap up your loan in 8 years and claim as much interest as possible.
For any help on ITR Filing feel free to consult the tax experts at Taxraahi. You can file ITR yourself via our ITR software or get CA’s help on filing income tax return. You can also use the option of Business Return, Bulk Return or Revised Return Filing.