Education loan is a must these days has individuals wish to pursue higher studies in India as well as abroad. The cost of education is so high that it is difficult to fund studies without financial help.
Do not forget that girl students in India get a slight reduction in interest rates when it comes to education loans in India.
Here are 5 must-know points on taxation on education loan.
1) Nature of Deduction
The deduction is allowed only on the interest repayment part, not on the principal amount of education loan. Means that only interest repayment is available for tax deduction while filing income tax return.
This deduction is over and above the 80C limit and there is no maximum limit on claiming deduction under 80E.
Also read: A Quick Review of the SBI Education Loan
2) Loan should be in your name
Deductions can be claimed only if the loan is availed on your name. If the loan is taken by your parents or spouse you cannot claim for the deduction even if the amount is used for your education.
Individual can avail loan and claim deduction for spouse and children or the student for whom the individual is the legal guardian.
3) Loan should be availed only for higher education
Individuals will not be eligible on deductions if the loan is availed for part-time courses. The department has defined higher studies and what is included.
"Higher education" means any course of study pursued after passing the Senior Secondary Examination, as per Income Tax Act.
This deduction is applicable on the course applied in India as well as abroad.
4) Approved Institutions
The loan should be taken from approved financial institution or from the institution established for charitable purposes and approved by the prescribed authority. Loan availed from relatives or friends are not eligible for deductions.
5) Tenure of the deductions
Individuals can claim for deductions for a continuous period of eight years, starting with initial assessment year. This means it is applicable from the year the assessee starts paying the interest and the following 7 years or until the interest is paid in full whichever is earlier.