Have You Taken an Education Loan? Don’t Forget to Claim Your Tax Benefits

Last Updated : March 15, 2016, 10:24 a.m.

Have you taken a loan for self, for children, spouse or for a students of whom you are legal guardian? If you have taken a loan on your name or you are a co-borrower of the loan, then you are very much eligible to claim tax benefits on that education loan. Education loan can be taken to pursue your higher education in India or abroad. The loan amount depends upon the type of programme you are pursuing along with the reputation of the college or university. Education loan is not just a financial tool to help you to support your studies, but it comes with tax benefits. You can use it to claim tax benefits to reduce the overall cost of your education loan. According to the Income Tax Law the taxpayer can claim tax benefits for education loan under section 80E.

You can claim the tax benefits under section 80E if you will satisfy some basic conditions such as:

• These deductions are available for individuals not to HUF or other type of assesses.
• The amount paid as interest is eligible for tax benefits. There is no upper limit for claiming tax benefits against the interest paid. However, you can’t claim tax benefits on the repayment of the principal amount of the loan.
• Tax benefits can be claimed only once you start paying the interest amount.
• The loan must be taken from any authorised bank, financial firm, or approved charitable organisation.
• Loan amount taken from family, friends, relatives and employer is not eligible for claiming tax benefits.
• You have taken the loan for self, children, and spouse or of whom you are legal guardian. Parents can claim tax benefits for loan taken for higher studies of their children if they are co-borrower in that loan.
• You can claim the tax benefits only once you start repaying the interest against your education loan.
• Maximum duration to claim tax benefits is up to eight years from the year you start paying the interest.
• You can claim tax benefits on education loan until you are paying the interest, no tax benefits can be availed on principal amount repayment.
• You can claim the tax benefits if the loan is on your name or you are a co-borrower in that loan.

Repayments of interest amount: The deduction allowed under section 80E is only valid for repayment of interest amount. The repayment of principal amount is not valid for claiming the tax benefits. At the time of lending the education loan banks always give you a full statement of loan amount with interest paid. Every bank mention the total number of EMIs paid against the loan with interest amount and principal amount paid each month against the loan.

The deductions under section 80E is over and above the amount of Rs. 1,50,000 deductions allowed under section 80C. There is no minimum and maximum limit to claim tax benefits under section 80E for interest paid against education loan.

Objective of loan: The deduction under section 80E is allowed only if the loan is taken to pursue the higher education in India or abroad. You must have taken the loan for enrolling in any course from a recognised university, college or institute. The loan must be taken for self, spouse, children or of whom you are legal guardian. Pursuing higher studies means that you are opting for a course after completing your Class 10+2 education from a recognised university, school or board. You can also get a loan to pursue vocational courses in India or abroad. You can borrow a loan for part-time, full-time, degree, diploma, and certificate courses. The loan amount varies for different banks. It can be minimum Rs. 20,000 to maximum 30 lakhs. The loan amount depends upon the type of course you are opting and reputation of the college.

From which organisation you can borrow loan? : You can borrow a loan from any national or international bank, which is authorised to provide education loan. You can also borrow loan from approved charitable trust or financial firms. But, loan taken from friends, relatives, family members and employer are not allowed to claim tax benefits.

Maximum duration: The deduction under section 80E can be claimed only once you start paying the loan. The deduction for education loan can be claimed up to maximum 8 years or till you are paying interest amount, whichever is earlier. The loan amount depends upon the type of course you are opting and reputation of the college. It can be minimum Rs. 20,000 to maximum 30 lakhs.

From which organisation you can borrow loan? : You can borrow a loan from any national or international bank, which is authorised to provide education loan. You can also borrow loan from approved charitable trust or financial firms. But, loan taken from friends, relatives, family members and employers are not allowed to claim tax benefits. There are banks such as ICICI, HSBC, HDFC, Punjab National Bank, SBI, Allahabad Bank, Punjab & Sind Bank, IDBI Bank, BOI Bank, Andhra Bank, Bank of Maharashtra, Syndicate Bank, etc., provide education loan at different rate of interest for different tenure.

Maximum duration: The deduction under section 80E can be claimed only once you start paying the loan. The deduction for education loan can be claimed up to maximum 8 years or till you are paying interest amount, whichever is earlier.