TAX SAVING ON EDUCATION LOAN! By: Manjiri S. Gupta

TAX SAVING ON EDUCATION LOAN! By: Manjiri S. Gupta

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TAX SAVING ON EDUCATION LOAN! By: Manjiri S. Gupta

 

 

(The author is an Article Assistant at SSRPN & CO. Nagpur. She can be approached at cassrpn@gmail.com)
“Education is the key to success”, but education is an area which involves huge amount of expenditure to arm ourselves with degrees. So to encourage higher education government has implemented Section 80E. Section 80E of the Income Tax Act 1961, provides deduction in respect of interest on loan taken for higher education. The loan taken not only include tuition fees expenses for the course proposed to be undertaken but would also includes travelling expenses (applicable especially in case of outside India), lodging expense and study material expenses and for instruments such as laptop which may be mandatory for the course.
The eligibility criteria to get income tax deduction are:
  • The deduction is available only against the loan that is taken for higher education.
  • Only individuals can claim deduction under this section who has taken loan for higher education and are paying interest for the same. It cannot be claimed by HUF, company or any other type of tax payers. Under this section the deduction was limited to the assessee himself till FY 2006-07. However, it was then modified and was also applicable to loans taken for :
  1. Self
  2. Spouse
  3. Children of the assessee, including adopted and step children.
  4. For any student for whom the assessee is the legal guardian.
  • The deduction can be claimed only on the interest component of the loan taken for higher studies. The principal amount cannot be claimed for deduction under this section.
  • The benefit can be availed by both the parent and child. This means the person who is repaying the loan, whether child or parent, can claim the deduction.
  • The exemption can be availed only by the person under whose name the loan is taken and is liable to pay taxes.
If you want to claim benefit of Section 80E, the loan must be taken from notified Financial institution or a recognized Charitable institution. Deduction cannot be availed if the interest is paid to relative, friend or employer towards loan taken for higher education.
It must be noted that the deduction is available only in respect of interest paid on loan taken, no deduction is available in respect of repayment of principal portion of loan taken for higher education.
Now the question arises what is higher education, higher education means the following:
  • Course taken up after completing Class 12th.
  • The university/board should be approved by local authority or the state or central government.
  • Deduction can be availed only for full time courses. But it covers vocational courses taken up after completion of senior secondary examination.
  • It also include overseas courses. Thus, courses undertaken outside India also fall under the purview of the meaning of ‘higher education’, if taken up after completing senior secondary examination.
The features of section 80E are as follows:
  1. The deduction under section 80E can be claimed for a maximum of 8 AY starting from the year one has started repaying loan or until the interest is completely repaid, whichever is earlier. But in case if the assessee closes the loan account earlier, the income tax deduction will be available for such reduced time period in which the loan was active.
  2. The amount of deduction that can be claimed is equivalent to the amount of interest paid on loan taken. Thus, there is no upper limit for the deduction to be claimed.
  3. The interest should be paid out of the income earned by the assessee during the financial year.
An individual who has taken an education loan for higher education can avail the tax deduction under Section 80E. The best part about this deduction is that one can avail it even after availing the maximum provided deduction of Rs. 1.50 Lakhs under Section 80C.
Note: The tuition fees paid towards the education is eligible for deduction under Section 80C of the Income Tax Act, 1961. However, the interest paid towards the education loan for higher education gets deduction under Section 80E.
It must be noted that the principal amount of Housing loan gets exempted upto Rs. 1.50 Lakhs under Section 80C, but there is no exemption allowed in case of principal amount of Education loan in Income Tax Act,1961.

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