Students aspiring to study at Ivy League institutions both at home and abroad are now opting for Education Loans, a term that has now made its entry as a drawing room discourse. The ever-increasing rate of higher education has made the requisite of student loans, further unavoidable. Growing expenditure of higher education and ever-increasing alertness about easily available education loans are stimulating the demand of these loans. Section 80E of the Income Tax Act, 1961, says, “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”. Get to know the Tax Benefits On Education Loan.
All the banks of India provide education loans for students aspiring to pursue higher education in the country or abroad, after they get valid admission. Most of the banks proffer a relaxation phase for repayment of the loan after the student completes the course. SBI has an education loan repayment time-period of 15 years after the course which also includes a 12 months of repayment break.
For students with financial issues, education loans are their key to study abroad or even at home. With the mission of supporting brilliant and deserving talents of the country, RBI has launched the concept of student or education loans from banks. The banks on their part have joined forces with education institutions to offer financial aid. According to the rules laid down by RBI, the highest amount for education loan for studying in the country is Rs.10 lakhs while the upper mark for studying abroad is Rs.20 lakhs.
Section 80E allows a person to reduce the effective burden of interest by agreeing to deduct interest costs from the earnings of parents or students.
Here are the 5 things everyone should know about Section 80E Tax benefits on Education Loan, before going to apply for a similar loan-
1) It is important to know that under Section 80E, one can claim income tax benefit on only on the interest part of the education/student loan. The principal amount of the loan is not included in any tax benefit.
2) In order to estimate the taxable income for a year, one can deduct the total interest amount of the loan paid back in that particular year. Also remember that there is no upper limit.
3) Income tax deduction on education/student loans is applicable for eight years or till the interest is paid, whichever is done earlier. For instance, on repaying the loan in six years, the borrower can claim deduction till six years only. If the repayment period offered by the bank is ten years, one can avail tax benefits only for eight years.
4) The income tax benefits on education loans are only applicable if such a loan is taken from a bank, a recognised financial institution or an approved charitable institution. It is very important to check out whether the institution is a legitimate and legal body, before approaching it for education loan.
5) Under Section 80E, income tax deduction on education/student loans are allowed only if the loan is taken for self, spouse, children or for the student of he/she is the legal guardian. Any education loan availed for siblings or relatives do not have tax benefits under Section 80E benefit. Deduction is only available to the one who has taken the loan in his/her name.
6.) Earlier there were provisions for deduction on education loan exclusively for those pursuing full time graduate or post-graduate courses in engineering, medicine, management. It was also offered to those studying post-graduate in applied sciences or pure science. The list has now been revised to take in vocational courses. Today it includes all branches of studies, including vocational courses, studied after clearing plus two level from a recognized board.
7.) Service holders who are looking for availing tax deductions on education/student loans, should notify their organisation’s HR or Accounts department so that a reduced amount of TDS is deducted from their monthly pay. However, they can claim the same by filing tax returns.