Education loan tax benefits: 3 important things to know
Education loans and other credit facilities designed to meet the higher education expenses have been widely demanded following the escalating number of higher education aspirants. Almost all the scheduled commercial banks are offering education loans either from their end or by institutionalising a designated education loan financier. Along with the banks, several microfinance lenders and non-banking finance companies (NBFCs) have also stepped up to provide credit for higher education purposes.
The applicant or the co-borrower can claim income tax deductions on the education loan repayment under Section 80E of the Income Tax Act. The tax deduction is available against the interest paid while repaying the home loan, education loan, vehicle loan with which the overall income tax liability can be reduced. However, there are certain conditions with which the tax deduction on education loan repayments can be ascertained.
According to the present guidelines levied by the Income Tax Department, the principal component of the education loan repayment is not qualified for a tax deduction and the tax deduction period for education loan repayment is allowed for a maximum of eight years from the beginning of repayment period. Moreover, the tax deduction on the interest payments is allowed for education loans taken from certain institutions prescribed by the I-T Department.
Interestingly, the I-T Department has not placed an upper ceiling on the tax break against the interest paid on education loan, so, a person can claim a tax deduction for the entire amount which is paid as interest on education loan repayments. The benefit of the tax deduction is allowed only for the individuals who are paying interest on the loan for themselves, spouse, children or to the student for whom they are a legal guardian.