Tax Benefits of Higher Education Loan U/s 80E
As we all in this day and age are aware of the concept of higher education loan but we forget the tax benefits of such a loan. As we all undertake higher education for our professional goals, taking a higher education loan to pay for the education costs can be a very helpful tool for tax planning as well. Let us one by one understand the related concepts for availing this tax deduction.
Section 80E
Under section 80E of the Income Tax Act, 1961, you can claim a deduction if you have
paid interest out of your taxable income on the loan taken for your higher education or also for your relative’s (spouse or children) higher education. In fact, as an extended benefit, the deduction for a higher education loan is also allowed to a legal guardian.
What is Higher Education
It is important to understand, for the purpose of this deduction, what is meant by a higher education. Higher education for this purpose involves full-time studies for a graduate or post-graduate course in engineering, medicine, management; or for the post-graduate course in applied sciences, or pure sciences, including mathematics and statistics. The vocational studies pursued after passing senior secondary is also included. This is how higher education is defined in Income Tax Act, 1961.
What kind of Higher Education Loans Qualify
Next step is to understand which kind of loans qualify for this deduction. It is pertinent for this deduction that the loan is taken for higher studies from any financial institution or approved charitable institution. A very important point to focus on here is that any form or kind of personal loans (could be from individuals, relatives, and friends) are not eligible for this tax deduction.
What will be the Deduction and When it will be available
Deduction for the interest paid on a qualified higher education loan as explained in the points above can be claimed for up to eight years from the start of the assessment year when repayment of this loan commences.
There is no monetary limit on the amount of interest on which deduction is allowed for education
loan. However, it is important to note that the deduction is allowed under the Act only if payment is made from taxable income.
It might be relevant though that the funds be borrowed keeping in view the rate of interest, and repayment tenure while remembering that there is no limit to the amount of interest allowed as a tax benefit.
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