If your employer still has not asked for your income tax investment proof yet, it is only a matter of time that they do so. And if you’ve taken an education loan, you have reasons to cheer because you get double benefit from it. On the one hand, it gives you or your child a chance for good education and on the other it offers a tax benefit.
As per Section 80 E on the Indian Income Tax Act, you can avail of a deduction on the amount you pay as an interest on the education loan.
Keep in mind that you get a deduction only on the interest and not the total amount you pay back as a loan amount. The total loan is made of two parts-the principal and the interest.
The good part here is that there is no limit to the deductible amount with an education loan, unlike when you take a home loan. You get a deduction for the interest paid during the year from your income for that particular year. There are some finer details that you should keep in mind, while taking an education loan and be eligible to claim a tax deduction.
Who: Anyone who take an education loan can avail of this tax deduction as long as the loan is taken for the spouse, children or self. If you are a legal guardian for a student, and take an education loan for such a student, you can claim the tax deduction benefit.
Where: You can claim this deduction only if you’ve availed the loan from approved charitable trust or a financial institution. So, if you are taking a soft loan from your employers or a friend that amount won’t qualify.
Which: There is a good possibility that you might get a loan from a financial institute or a charitable institute, but the course or which university or educational institute you plan to study also matters. For instance, as per the Indian Income Tax laws you can get a tax benefit on education loans taken for both regular as well as professional courses pursued after passing the senior secondary examination. Also keep in mind that only full time courses are eligible for tax benefits. You could take the course domestically or it could be a course abroad.
Most important: Understanding that you get a tax deduction on the interest amount you pay on an educational loan, is easy. It’s not rocket science, but it comes with a condition. Firstly, you will be able to avail this tax benefit as soon as you start the repayment of the loan. Deduction is permitted in the initial assessment year or the year in which you start paying the interest on the loan and seven more years immediately after the initial assessment year. Also keep in mind that deduction is available only up to eight years. So, if you extend the loan repayment, you won’t be able to get the deduction after eight years.
Now that you know more about the tax deduction on education loan, make the most of this information and keep tracking this space to know more about various tax benefits you can claim.