Quality higher education opens many avenues for an individual. However, due to the increased fees, many people have to opt for education loans to afford higher education. Did you know you can opt for an income tax rebate on education loans?
Education loans are secured or unsecured loans provided by banks or NBFCs for the sole purpose of pursuing higher education. Any course, vocational or regular, after the 12th standard is considered to be ‘higher education’.
Education loans generally cover expenses for tuition fees, hostel fees, study materials, laptops, study tours, etc. These loans also have a moratorium period, until the completion of the studies or when you get a job, whichever happens sooner.
Education loan tax benefits help make higher education achievable by letting you get refunds on the tax component paid on the loan. Under Section 80E of the Income Tax Act of 1961, you can get refunds for a limited period.
Education loan income tax benefits can be claimed for 8 years from when you start repaying the EMIs of your loan. When you pay the EMI, it has an interest and a principal component. You can calculate the interest component paid by you and claim refunds while filing your income tax returns.
Other sections of the Income Tax Act, like the 80C and 80D, also allow certain tax deductions. However, both have limitations on the total amount that can be deducted.
80E has no such limitations. The total amount paid as interest for 8 years or till the loan gets repaid, whichever happens first, can be claimed as a refund. You can claim the amount at the end of each financial year.
Getting an ‘income tax rebate on education loan’ is an easy process. All you have to do is -
Obtain a certificate from your lender which segregates the interest and the principal amount paid during the financial year.
While filing your Income Tax Return (ITR), select 80E and enter the interest amount paid by you.
If you are salaried, you can inform the accounts department of your organization to reduce the TDS. On the other hand, you can also apply for a refund while filing your ITR.
Everyone who takes an education loan is eligible for an education loan income tax benefit. The eligibility criteria are listed in detail below -
Only individuals who apply for a loan can claim an income tax rebate for education loans.
HUFs or any other kind of taxpayers are not eligible for education loan tax benefits.
80E tax deductions can only be claimed if the loan has been taken from a recognized lender like a bank, or an NBFC.
Loans should be taken for higher education, i.e., for studying after Class XII.
Loans used for studying in India or abroad, and for regular or vocational courses are eligible for tax exemptions.
Loans can be taken by the student, their family member, spouse, or wards. In all cases, they will be eligible for education loan tax exemptions.
Only the interest component of educational loans can be claimed as deductions. The principal component is not eligible for tax rebates.
Tax rebates can be taken for 8 years, or till the loan is repaid, starting from the date of starting the EMI repayments.
Higher education is a costly affair and often people opt for education loans to fund it. The government gives education loan tax benefits to encourage people to take loans and invest in their education.
You can opt for tax benefits for 8 years according to Section 80E of the Income Tax Act, 1961. In case you choose to repay the loan earlier, or your tenure is shorter than 8 years, you cannot claim rebates anymore.
You can choose to pay the loan through the whole tenure to make use of the education loan tax exemption facility. You can invest the surplus amount instead of foreclosing the loan. On the other hand, if you want to become debt-free sooner, you can choose to end your loan before the tenure.
Education loans are a great way for meritorious students to fund their education if they do not have the funds required. Even working professionals can procure education loans in their name and fund higher education by themselves.
Yes, you can get tax exemption for education loans.
You can apply for an education loan to fund the educational expenses of your spouse. You can also claim a rebate on the interest amount paid while repaying the loan taken for your spouse’s education.
Yes, you can claim both 80C and 80E.
You can claim the total amount paid as interest over 8 years or till the EMIs are being paid, whichever happens earlier. There is no limit on the amount that can be claimed as an education loan tax exemption.
No, education loans are not interest-free. Just like any other credit product, you need to pay interest if you take an education loan. But you can claim the total amount paid as an interest component at the end of the financial year.
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