Education Loan offers Tax sops
An investment in knowledge pays the best interest.
-Benjamin Franklin
Income Tax Act is not only a source of providing revenue for the country but also a source to promote the socio-economic objective of the Government. Importance of education cannot be ignored in the growth of the country & Income tax Act aptly incorporates the tax sops for it u/s 80C by providing deduction towards tuition fees paid for the education of children & also u/s 80E by way of providing for deduction towards interest on education loan. Let us know more about the tax benefit u/s 80E.
Eligibility:
Deduction u/s 80E towards interest on education loan taken for the education of Self, Spouse or Children of Individual or for the student of whom individual is legal Guardian. Loan taken for the education of brother or sister, deduction is not admissible. It is available only to an Individual not to HUF or other categories of taxpayers. Education loan can includes not only loan towards college fees but can also include loan towards other incidental expenses. For pursuing such studies like hostel charges, transport charges, books, etc. Only interest paid is eligible for deduction & there is no cap on the amount to be deducted. Entire interest amount is deductible subject to the condition that Interest has been paid during the year & the same is paid out of income chargeable to tax.
|
Education loan u/s 80E cannot be equated with housing loan. Housing loan offers the deduction towards repayment of the principal portion of the loan. Also whereas education loan offers the benefit of interest deduction only. |
Only for Higher Education:
Only loan taken for higher education offers tax benefit. Loan taken for the school education of the children is not eligible for the benefit. “Higher education” here means any course of study pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognized by the Central Government or State Government or local authority or by any other authority. Authorized by the Central Government or State Government or local authority. There is no condition that the course should be in India. Higher studies include all the fields of study pursued after passing the senior secondary examination or its equivalent exam and include both the Vocational courses as well as the regular courses. Deduction is available only if loan is taken from specified financial institution or recognized approved charitable institution. Loan taken from relatives or friends will not be eligible for deduction.
| Deduction is permissible for the education loan taken for the education of Self, Spouse or Children of Individual or for the student of whom individual is legal Guardian. Deductions can be claimed only if the loan has been taken in the name of the taxpayer. If the parents, spouse or sibling has taken the loan for the studies of a student then student will not be eligible for deduction after he starts earning & repaying the loan. It’s only the borrower who is eligible for deduction. It is better the person who intends to claim the tax benefit is made an applicant. In the loan application at the time of availing education loan. If the loan is taken in the joint names of parents/children. Then all of them will have the flexibility to claim the tax deduction on their repayment. |
Duration of tax benefit:
Tax deduction period is capped for 8 years. Deduction is permissible from the first year in which the taxpayer starts paying it & seven subsequent years thereafter or until the interest is paid in full, whichever is earlier.
[Readers may forward their feedback & queries at taxtalknew@gmail.com. Other articles & response to queries are available at www.theTAXtalk.com ]
