Tax Relief on Education Loans
5 things you must know about tax relief on education loans in India
The Government of India provides special schemes to help students afford higher education without being stressed by the burden of an education loan. From offering relatively low-interest loan schemes to special interest subsidies on education loans, the Indian Government tries to make higher education possible for all students.
Some students may know about the facilities available to them while applying for an education loan, most are oblivious to the tax benefits provided under Section 80E. Let us help you understand it by giving you 5 key points about tax relief available under Section 80E of the Indian Income Tax Act, 1961.
#1: It is Allowed on Interest Paid by the Borrower.
Tax relief can only be availed on the interest component of the EMI. However, you may have to obtain a certificate that gives the EMI breakups from the bank. The good news is that there is no cap on the maximum eligibility.
#2: It is Meant for Individual Borrowers.
The deduction under Section 80E is available for individuals which means that HUFs or other types of taxpayers cannot avail of the tax benefit.
#3: It is Available on Loans Taken for Higher Education.
The education loan for which you want to get the benefit should be for higher studies after passing Class 12 or its equivalent under different education boards such as state boards, CBSC, ISCE, etc. Loans taken for regular and vocational courses are also eligible.
#4: It is Applicable to Loan for Self, Family or Legal Wards.
The tax relief is applicable to repayments of an education loan taken by the borrower for self, spouse, child or legal ward (a child for whom the taxpayer acts as a legal guardian).
#5: It is Available for 8 years.
The deduction under Section 80E of the Income Tax Act is only available for 8 years. The deduction term starts from the year in which the loan repayment starts or up to the time when interest is fully paid off during the repayment period of the loan, whichever is earlier. For instance, if you take an education loan that needs to be repaid in 8 years but the lender charges the interest up to the 6th year then you are eligible for section 80E deduction up to the 6th year only because the EMI in the last 2 years will only comprise of the principal component.
A Final Word
Now you know how to reduce your tax burden by using deductions under Section 80E of the Income Tax Act, 1961. In case you did not know, the education loans taken from banks, NBFCs and approved charitable institutions are eligible for the said tax relief while informal loans such as those from family members, friends or relatives are not eligible.