Every parent dreams of providing their children with the best possible education. However, a good education often comes at a steep price. Study programmes, especially the ones in foreign universities and institutions, can be exorbitant. For this, almost every financial institution provides funds in the form of an education loan to students.
Such a loan from a reputed lender not only finances higher studies in the institution of your choice but also offers several other advantages. The most important one is education loan tax exemption.
Going back to the question in the article’s title, we answer it with a massive YES. While you pay back the loan, you can claim tax benefits as a deduction. However, there exist certain limitations on who can enjoy the education loan deduction and for how long.
Education loan tax benefits
The borrower of a personal loan for educationor education finance can avail of tax incentives under Section 80E of the Income Tax Act, 1961. To be clear, no tax benefit is available for the principal part of the monthly instalment. You can only avail of any deductions on the interest that you will repay as the EMIs.
Additional Read: How to Save Tax on Education Loans
Who can get the tax benefits?
It depends on the person who is repaying the loan. It can be either the student or their parent. Also, the lender needs to be approved for you to claim any tax deductions. So, if you happen to take a loan from your relatives or friends, no tax relief is given in such a case.
Moreover, only an individual loan borrower can receive a tax exemption. In other words, HUF or business-account taxpayers cannot get tax incentives.
Further, there is no cap on tax deduction here. In other words, no limit on the maximum tax exemption is applicable. It is decided as per the total interest you need to pay as EMI for any fiscal year. A personal loan EMI calculator can come in handy at such occasions.
Additional Read: Claim Tax Benefits on an Education Loan
What is the period of deduction?
Ideally, it begins from the year you start loan repayment. After that, it continues:
- For eight years, starting from the year, you begin repaying the loan amount.
- Or, until the interest is entirely repaid.
The deduction period is decided based on whichever of the above two happens earlier. For instance, suppose your loan period is six years, then you can claim tax exemptions on the interest part of the EMI for six years only. However, if your loan tenure may extend beyond eight years, then you receive no tax benefits.
That is why experts suggest applying for education loan tenures less than eight years.
The bottom line
With easy-to-get monetary aids, the government and financial institutions like Tata Capital ensure that every student receives a quality education.
At Tata Capital, we offer enticing personal loan interest rates for pursuing higher education.
You can disembark on your learning journey without the stress of managing finances once you satisfy our personal loan eligibility criteria. So, get in touch with us and take a critical step towards your higher education by availing our personal loan today!