With the cost of quality education on an exponential rise, education loans have come as a boon in the lives of students aspiring for education from premier educational institutes. The many benefits of education loans have made them a preferred choice of funding education over self-finance. These advantages include tax benefits, doorstep service, pre-approval before confirmed admission, no margin money and flexible repayment terms etc.
Tax benefits are, undoubtedly, one of the major advantages of an education loan. Tax benefits significantly lowers the effective rate of interest making your education loan cost-effective. However, it is important to remember that only an education loan taken from banks and financial institutions notified in the Official Gazette or an approved charitable institution is eligible for income tax benefits under Section 80E. Education loan taken from friends and family do not qualify for income tax benefits under Section 80E.
To bring more clarity, let’s answer some of the frequently asked questions on income tax benefits of an education loan -
- Q. What are the tax benefits of an education loan?
Ans- Under Section 80E of the Income Tax Act of India, 1961, education loan applicants can claim deduction during repayment of interest on their education loan. This implies that the interest paid on the education loan can be deducted from the taxpayer’s taxable income.
- Q. What is the maximum amount of interest that can be deducted from the taxable income?
Ans- There is no upper limit on the amount of interest that can be claimed as deduction under Section 80E. This implies that the entire interest paid on your education loan can be deducted from the taxpayer’s taxable income, a privilege reserved only for education loan applicants.
- Q. Who can avail tax benefits of an education loan?
Ans- Any individual who takes an education loan for self, spouse, children or a student of whom the individual is a legal guardian can claim deductions on interest paid on education loan under Section 80E.
- Q. For how long can the deductions under Section 80E be claimed?
Ans- The deductions under Section 80E can be claimed in the year when the individual starts repaying the interest on the loan and for 7 succeeding years. So, the deductions can be claimed till the interest part of the loan is fully repaid or for a period of 8 years, whichever occurs earlier.
- Q. Which course should be opted for to avail tax benefits?
Ans- Under Section 80E, all courses of study pursued after Senior Secondary Examination from any educational institute recognized by the Central Government, State Government or a local authority are eligible for income tax benefits. Income tax benefits under Section 80E can be availed for study in India and abroad.
Education loans have gained much popularity among students and their families by offering savings in the form of income tax benefits. HDFC Credila is a leading NBFC that lets its students enjoy tax benefits under Section 80E. The Gazette Notification of HDFC Credila can be viewed at https://www.incometaxindia.gov.in/communications/notification/920110000000000492.pdf