Tax deduction on education loan

An education loan can help fund your higher studies and also serve as a tax saving measure. Under Section 80E of the Income Tax Act, 1961, you can get...

An education loan can help fund your higher studies and also serve as a tax saving measure. Under Section 80E of the Income Tax Act, 1961, you can get tax deduction on the interest paid on an education loan. The education loan can be borrowed by you for the higher education of your child, spouse or a student to whom you are a legal guardian. The tax deduction is only for the interest paid on the loan and not the principal amount. Tax deduction is applicable only if the loan is borrowed from an eligible bank or financial institution.

Benefits of an education loan

Pursuing higher studies in a reputable institution can be expensive but that shouldn’t stop you from fulfilling your dream. Higher studies will ensure you obtain skillsets that will enable you to build a good career. A good career will ensure you enjoy a better lifestyle. The benefits of an education loan are listed below:

  • Education loan helps secure the future of a student.
  • It provides financial support at a much needed time.
  • Students from all walks of life can pursue higher studies with an education loan.
  • Several different types of education loans are available to suit every individual’s varying needs.
  • Education loans can be used to pay for expensive courses like MBBS, MBA, etc.
  • Students can enroll for higher studies in a reputable institution in India or abroad.
  • Education loans can be taken for the higher studies of a child, spouse or self.
  • You are eligible for a tax deduction on the interest paid on your education loan under Section 80E of the Income Tax Act, 1961.
  • Banks provide lower interest rates on education loans.
  • You get easy loan repayment options.
  • You can get education loans of up to Rs.20 lakhs.

Eligibility criteria for tax deduction on education loan

You can save tax on education loan taken to pursue higher studies. You have to fulfil the following eligibility criteria to get a tax deduction on your education loan:

  • Education loan has to be borrowed from a scheduled bank, gazette notified financial institution or an approved charity institution.
  • Tax deduction is for interest paid and not the principal amount of the loan.
  • There is no upper limit on the rate of interest or the amount of interest that can be deducted from your taxable income.
  • Education loan should be taken for the higher studies of self, spouse, child or a student to whom you are a legal guardian.
  • Tax deduction can be claimed by you only if the education loan is taken in your name.
  • Tax exemption is applicable for an education loan taken to pursue higher studies in India or abroad.
  • An education loan for higher studies is specific to any course of study taken after passing the senior secondary examination or its equivalent from the central or state government recognised education board, school or university.
  • A tax deduction is applicable from the year you start paying interest on the loan amount. You can get a tax deduction on an education loan for up to 8 years or until the year you fully repay the loan, whichever is earlier.
  • You have to get a loan repayment certificate from the lender for each year that you are claiming tax deduction.

Tax deduction is not applicable on education loan borrowed from an employer or relative. Education is a noble pursuit. Therefore, monetary constraints shouldn’t stop you from pursuing higher studies. If you have borrowed an education loan from a recognised bank or financial institution then keep in mind that you are eligible for tax deduction on the interest paid.

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Taxes
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