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What are the Tax Exemption on Education Loan ?

What are the Tax Exemption on Education Loan ? – If you are having an existing education loan or planning to get a new education loan for your studies, then it is necessary to know the benefit of getting an education loan.

The education loan principal as well as the interest are exempted under Income tax with few condition. Let’s check the proper way of claiming exemption of Tax on education loan.

  1. The education loan consist of two component i.e. Principal as well as Interest. The income tax benefit can only be claimed on interest part of the loan. The principal part does not qualify for tax benefit.The benefit can be claimed under section 80E of Income tax act.

The features of Section 80E are : 

  1.  The Education loan benefit are allowed under Section 80E of Chapter VI-A  is only for the repayment of Interest on Education Loan and  not for the purpose of Repayment of Principal Amount of Education Loan. The loan statement of the bank mentioned the details.
  2.  There would not be any benefit of exemption on Repayment of Principal for the purpose of Income Tax and only the amount repaid as Interest on Education Loan is allowed to be claimed as a deduction while filing the Income Tax Return.
  3.  The deduction under 80E is within the overall exemption limit allowed i.e.  Rs. 1,50,000 under Section 80C. There is no maximum limit to claim under 80E.
  4.  Deduction under Section 80E is allowed only in case of such Education Loan which was taken for the purpose of Higher Education of Self or Spouse or Children or the Student of whom the Individual is the Legal Guardian.
  5. The benefit may be granted to Vocational courses and any Education Loan taken from 1st April 2009.
  6. Overseas study are also eligible to get the tax exemption
  7. This is to remember that Education loan will be getting  the Income Tax exemption only when the loan are taken from any financial institution like Banks.

Read : Whether Vocational Courses eligible for Education Loan ?

Education Loan Time Frame to Get the Income Tax Exemption

The Income tax deduction are allowed for a maximum period of 8 years or until the Interest is repaid in full which ever is earlier. The education loan exemption benefit are granted under Section 80E only in year  in which the Individual starts paying the Interest on Education Loan and in 7 succeeding years.

Read : What is the Quantum of Finance Under Education Loan ?

Major Highlights of Education Loan Tax Benefit

  • Income tax Deduction can be claimed by an individual only if the loan has been taken in his/her name.
  • There is no upper limit of the rate of interest which will be allowed as a deduction.However, the entire interest part of the loans repaid can be deducted while calculating your taxable income. There is no upper limit for grant of deduction in respect of interest on loan for higher education.
  • Education loan taken for siblings or other relatives don’t qualify for Section 80E benefit.An individual can avail of tax benefit if he/she has taken an education loan to support higher studies of self, spouse, children or for the student of he/she is the legal guardian.
  • This is to remember that Education loan will be getting  the Income Tax exemption only when the loan are taken from any financial institution like Banks.
  • Government affiliated vocational courses are eligible for Income Tax exemption
  • Education loans with moratorium period during which you opt not to service the loan. If you opt to pay interest during the moratorium period, it gets included while calculating the time limit of eight years.

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