Higher education is indispensable as finding a good job is getting tough every year. Higher education will help individuals to expand their skills and knowledge and are likely to be better off in terms of economic well-being. Investment in higher education not only helps in the development of an individual but also in the development of national economy. However, seeing the rising cost of higher studies, we end up spending a substantial amount of our savings on the higher education in India or abroad.
Demographically India has an advantage of having one of the largest youth populations, integrated with the widespread educational institutes and schools, and hence expenses on education are becoming one of the liabilities one has to account for.With the growth of the Indian economy and rise in income levels, the spending on education has increased too, that accounts for the second largest share of wallet for middle-class families in the country.
An education loan can help you fulfilling your dreams of getting higher education. The deduction can be claimed under section 80E of the Income Tax Act, 1961 for the interest paid on education loan.There is no tax benefit for the principal part of the loan.
Who is eligible?
The deduction under section 80E can be claimed only by an individual for the interest amount paid on education loan. The education loan can be taken by an individual for the higher education of self or spouse or children or student, to who the individual is the legal guardian.
What of the purpose of loan?
The loan should be taken for pursuing higher studies. It is not concerned whether such education loan is taken for higher studies in India or outside India. Higher studies include all the fields of study undertaken after passing the senior secondary examination or its equivalent examination. It includes both vocational as well as regular courses.
What is the qualifying expenditure?
The deduction under section 80E can be claimed only on the interest amount paid on education loan. The deduction cannot be claimed on repayment of principal amount of the education loan. The individual needs to obtain a certificate from the bank wherein the principal and the interest amounts of the education loan paid during the financial year should be separatelymentioned.
The education loan can be taken for any study in India or outside India (i.e., any study after qualifying senior secondary examination). The deduction is only available when the loan is borrowed from a bank, financial institution or an approved charitable institution in India. Therefore, education loan taken from friends or relatives do not qualify for deduction under this section. Also education loan taken from any bank or financial institution outside India would not be allowed to be claimed as deduction.
a) “approved charitable institution” means an institution established for charitable purposes and approved by the prescribed authority section 10(23C), or an institution referred to in section 80G(2)(a);
b) “financial institution” means a banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking institution referred to in section 51 of that Act); or any other financial institution which the Central Government may, by notification in the Official Gazette, specify in this behalf;
Documents required for claiming deduction
The individual needs to obtain a certificate from the bank, financial institutionorapproved charitable institution from where such education loan has been taken. Such certificate should bifurcate the principal and interest portion of the education loan paid by the individual during the financial year. The total interest paid will be allowed as deduction. On the principal amount repayment, no tax benefit is allowed.
Maximum ceiling
There is no limit to claim the deduction under section 80E. The assessee can start claiming deduction from the year in which the individual starts paying the interest on loan and can be claimed in subsequent 7 years. Thus, the deduction is available for a period of maximum 8 year or until the interest is repaid in full, whichever is earlier.
Thus, the education loan helps in building the career by financing the crucial years of education. If you have taken loan to finance your education, deduction can be claimed for the interest amount repaid under section 80E of Income Tax Act, 1961. In this way one can save some amount of money also.
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