Understanding Tax Benefits on Education Loans
Tax saved is money saved. Therefore, tax planning is a must for all taxpayers. One of the best ways to save tax for those taxpayers who have children, who are either just entering college or going to take a professional degree course, is to consider not investing their own savings in education. Instead, they should take an educational loan, which is easily available these days. Here is a guide that will assist you in understanding the tax benefits on education loans. These benefits help you reduce the overall cost of your education loan.
Conditions for Deduction Under Section 80E
1. **Deduction Amount:** The amount of interest paid is eligible for deduction, and moreover, there is no cap on the amount to be deducted. You can deduct the entire interest amount from your taxable income. However, there is no benefit available on the repayment of the principal amount of the loan.
2. **Eligible Loans:** Interest should have been paid on a loan taken by an individual from any financial institution or any approved charitable institution for the purpose of pursuing higher education. Interest on loans taken from relatives or friends will not be eligible for deduction under Section 80E.
3. **Purpose of Loan:** The loan should have been taken for the purpose of pursuing higher studies of the individual, spouse, children of the individual, or the student of whom the individual is the legal guardian.
4. **Ineligible Relatives:** Education loans taken for siblings (brother/sister) or other relatives (in-laws, nephew, niece, etc.) would not qualify for Section 80E benefits.
5. **Initial Assessment Year:** This means the assessment year relevant to the previous year in which the assessee starts paying the interest on the loan.
6. **Loan in Individual's Name:** Deductions on education loans can only be claimed if the loan has been taken in your own name. If your parents, spouse, or sibling has taken the loan for your studies, then you are not entitled to get a tax benefit.
7. **Expenses Covered:** The loan includes not only tuition or college fees but also other incidental expenses for pursuing such studies, like hostel charges, transport charges, etc.
8. **Section 80C Exclusion:** Repayments of education loans are NOT covered under Section 80C.
9. **Course Location:** There is no condition that the course should be in India.
Regards,
Tax saved is money saved. Therefore, tax planning is a must for all taxpayers. One of the best ways to save tax for those taxpayers who have children, who are either just entering college or going to take a professional degree course, is to consider not investing their own savings in education. Instead, they should take an educational loan, which is easily available these days. Here is a guide that will assist you in understanding the tax benefits on education loans. These benefits help you reduce the overall cost of your education loan.
Conditions for Deduction Under Section 80E
1. **Deduction Amount:** The amount of interest paid is eligible for deduction, and moreover, there is no cap on the amount to be deducted. You can deduct the entire interest amount from your taxable income. However, there is no benefit available on the repayment of the principal amount of the loan.
2. **Eligible Loans:** Interest should have been paid on a loan taken by an individual from any financial institution or any approved charitable institution for the purpose of pursuing higher education. Interest on loans taken from relatives or friends will not be eligible for deduction under Section 80E.
3. **Purpose of Loan:** The loan should have been taken for the purpose of pursuing higher studies of the individual, spouse, children of the individual, or the student of whom the individual is the legal guardian.
4. **Ineligible Relatives:** Education loans taken for siblings (brother/sister) or other relatives (in-laws, nephew, niece, etc.) would not qualify for Section 80E benefits.
5. **Initial Assessment Year:** This means the assessment year relevant to the previous year in which the assessee starts paying the interest on the loan.
6. **Loan in Individual's Name:** Deductions on education loans can only be claimed if the loan has been taken in your own name. If your parents, spouse, or sibling has taken the loan for your studies, then you are not entitled to get a tax benefit.
7. **Expenses Covered:** The loan includes not only tuition or college fees but also other incidental expenses for pursuing such studies, like hostel charges, transport charges, etc.
8. **Section 80C Exclusion:** Repayments of education loans are NOT covered under Section 80C.
9. **Course Location:** There is no condition that the course should be in India.
Regards,