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How To Claim Tax Benefits On Education Loan?

How To Claim Tax Benefits On Education Loan?

Yes, a loan for education is one of the easiest and quickest ways to finance higher studies. You are eligible for tax benefits on education loan, provisioned by the Income Tax Act of 1961. However, certain conditions must be met before claiming any tax benefits. Here are the ins and outs to know before you can claim tax benefits.

Who Can Claim Education Loan Tax Benefits?

When you avail education loan for higher education in India or abroad, Section 80E of the Income Tax Act, 1961, makes you eligible for tax deductions on the interest paid on such loans.

Income tax benefit on education loans is available for –

  • Any person taking a loan for education can claim a deduction after getting a job.
  • Spouse repaying the loan.
  • Legal Guardian repaying the education loan.
  • Parents who are primary borrowers or co-signee to the education loan.

Where Should You Apply for a Loan?

Where you secure your education loan is also a matter of consideration to become eligible for tax deductions. The loan must be taken from a reputed lending institution or RBI-approved charitable trust. Loans taken from friends or family members do not qualify for tax deductions.

What Must Be the Purpose of Taking the Loan?

Under Section 80E, you can avail the tax benefits only on loans taken for higher education in India or abroad. The courses eligible for education loans include –

  • Any full-time course after completion of senior-secondary exams
  • Vocational courses
  • Post-graduation courses
  • Any other course recognized by the appropriate board.

What Is the Tax Deduction Amount?

The Income Tax Act sets no maximum limits on the tax benefits. However, students can only obtain tax benefits from the interest paid on the education loan. There are no tax deductions on the principal amount. Hence, you can claim a tax rebate on education loan’s entire interest amount for tax deduction without any upper limit.

What Is the Period of Deduction?

Tax deductions on the total interest paid will begin from the year you start your loan repayment. However, the period for such deduction only extends up to a maximum of eight years, or until the interest on the loan is fully repaid, whichever is earlier.

If you repay your education loan within six years, then tax deductions will be permitted until six years only, not eight years. Similarly, if you exceed your loan tenure beyond eight years, then you cannot claim for any tax deductions.

Hence, it is advisable to pay off one’s loan within a period of eight years.

What Are the Documents Required to Claim Tax Benefits?

The documents required to claim tax deduction under Section 80E are –

  • Certificate from the financial institution or authorized charitable trust who granted the education loan.
  • The certificate must mention the principal amount and interest amount of the education loan taken for each financial year separately.

Other Benefits of Taking an Education Loan?

  • Students can apply for an education loan without collateral; however, a guarantor is needed.
  • If you are repaying the loan on time, the interest rates decrease.
  • Tuition fees, travel fees, and hostel fees are covered in the loan at the Bank’s discretion.
  • Education loans are very flexible; you can extend the repayment period if you are regular in your EMI payments. But extending your loan tenure will increase the total interest on the loan. So, it is advisable to pay off your debts at the earliest.

The Bottom Line

Want to avail a loan for education at attractive personal loan interest rates? If so, then turn to Tata Capital – one of India’s leading lending institutions.

We offer customized loans as per your requirements. Simply use our online personal loan EMI calculator and adjust the loan amount and tenure. Plan out your loan in advance to have a smooth repayment experience.

Our personal loan eligibility criteria are relaxed for your convenience. Contact us to know all the details today!

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