Income tax deduction for Education Loan (Section 80E)

Repayment of education loan taken from bank is allowed as expense (deduction) while calculating Income Tax, thus allowing Tax Benefit.

Legal section applicable: Section 80 E of Income Tax Act, 1961

Repayment may be of (1) Principal    (2) Interest component

But the exemption is available ONLY for the interest, not for the Principle amount.

Other Important Aspects:

1. Whose education is the loan taken for?

Education loan tax benefit can only be availed for the loan taken for the education of:

– Individual himself/ herself

– Spouse,

– Children or

– Any other individual for whom the above-mentioned person is a legal guardian.

2. Purpose of education loan

It is available only if the loan is taken for higher studies (either regular or vocational) whether within or outside India.

Example 1: Loan taken for MBA in private college in India/ USA: Eligible

Example 2: Loan taken for tuition classes in coaching center in India/ USA: Not Eligible

3. Is there any limit on the amount that can be claimed for tax benefit?
There is no maximum amount for claiming the tax benefit.

4. Can the loan be taken from anyone?

The loan must be taken from a registered financial or charitable institution only, otherwise, no such benefit is available.

Example 1: Loan taken from SBI: Eligible

Example 2: Loan taken from a friend: Not eligible

5. Can the benefit be claimed after studies are over but the  repayment of loan is still going on?

The benefit can be availed for a maximum of eight years only, which means it will be earlier of repayment of interest or eight years from the date of payment of the first instalment.

Example: Mr. X takes a loan of Rs. 10 lacs for his daughter Priya’s higher studies from PNB Bank. The rate of interest is 10% p.a. So, the amount of interest per year comes out to be Rs. 1 lac.

Results:

  1. The benefit will be available only on Rs. 1 lac and not on Rs. 10 lacs in any year.
  2. The benefit can be claimed by only the person who took the loan – may it be mother of Priya or father of Priya – not both.
  3. Treatment of interest

 

 

 

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