Pursuing higher education in India or abroad can involve considerable expense, the interest paid on the education loan is allowed as a deduction under Section 80E of the Income Tax Act, 1961. However, it is essential to know the drill before applying for one. here are the top 7 Things you Must Know about Education Loan Tax Benefits in 2024.
Education Loan Tax Benefits under section 80E Deduction
Financing Higher Education:
- Personal Loan is a quick option for funding education.
- Student Loans offer tax benefits for the borrower.
Tax Benefits Eligibility:
- Tax deductions under Section 80E are for individuals.
- No deductions for joint loans.
- Eligible parties include parents, students, spouses, or legal guardians.
Purpose of Loan:
- Deductions for Education Loans for Higher Studies.
- Covers full-time courses, post-graduation, and vocational courses.
Deduction Amount:
- Tax benefits are on the interest, not the principal.
- The entire interest payable is deductible, with no upper limit.
Tax Deduction Period:
- Available for a maximum of 8 years from the first year of repayment.
- If repaid within 7 years, deductions are available for 7 years.
Source of Finance:
- Tax benefits under Section 80E apply only to loans from recognized financial institutions.
- Loans from friends or family for higher education are not eligible for tax savings.
Conclusion:
- Education Loans are a swift financing option for higher education with added tax benefits.
- Eligibility for tax deductions under Section 80E includes parents, students, spouses, and legal guardians.
- Deductions apply to the Interest component, offering an affordable choice despite no benefits on the Principal repayment.
- The maximum deduction period is 8 years from the start of loan repayment.
- Tax benefits are exclusive to loans from recognized financial institutions, excluding those from friends or family for higher education.
FAQs - Education Loan Tax Benefits
1. Who is eligible for tax benefits under Section 80E?
- Parents taking loans for their children
- Students can claim after employment, from taxable income
- Spouses paying the loan
- Legal guardians paying for the child's education
2. What is the purpose of the loan for tax benefits?
- Tax deduction applies to Education Loans for higher studies in India or abroad.
- Higher studies include full-time courses post-senior secondary education.
- Tax savings are also available for vocational courses.
3. What part of the loan qualifies for tax benefits?
- Tax benefits apply only to the Interest component, not the Principal amount.
- The entire interest payable in a financial year is eligible for deduction.
- No upper limit on savings, compensating for the lack of benefits on the Principal repayment.
4. What is the tax deduction period for Education Loans?
- Deductions are available for up to 8 years from the first year of loan repayment.
- If the loan is repaid within 7 years, deductions are valid for 7 years, not 8.
5. Is there a restriction on the source of finance for tax benefits?
- Tax benefits under Section 80E apply only to loans from recognized financial institutions.
- Loans from friends or family for higher education do not qualify for tax savings.