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How To Claim Tax Benefits On Education Loan?

How To Claim Tax Benefits On Education Loan?

Yes, a loan for education is one of the easiest and quickest ways to finance higher studies. You are eligible for education loan tax exemption, provisioned by the Income Tax Act of 1961. However, certain conditions must be met before claiming any tax benefits and deduction for education loan. Here are the ins and outs to know before you can claim tax benefits on education loan.

Section 80E: Complete guide to education loan interest exemption

Section 80E provides a valuable education loan tax benefit for individuals repaying higher education loans. While many ask “Is education loan tax free?”, the relief applies specifically as an education loan interest deduction, not on principal repayment.

Under this education loan income tax benefit, you can claim tax benefits on education loan interest paid for self, spouse, children, or legal ward. There is no fixed education loan tax exemption limit, making it a flexible deduction for education loan repayment. This education loan tax exemption is available for up to eight consecutive years from the start of repayment.

Often referred to as an education loan income tax rebate or tax rebate on education loan, it helps lower taxable income. While planning finances, borrowers should also calculate student loan interest rate carefully to maximise long-term savings.

Who can avail education loan tax benefits in India?

Many wonder, is education loan tax free? When you avail education loan for higher education in India or abroad, Section 80E of the Income Tax Act, 1961, makes you eligible to claim tax benefits on education loan on the interest paid.

Income tax benefit on education loans is available for –

  • Any person taking a loan for education can claim an education loan interest deduction after getting a job.
  • Spouse repaying the loan.
  • Parents who are primary borrowers or co-signee to the education loan.

Where to obtain an education loan for 80E tax benefits?

Where you secure your education loan is also a matter of consideration to determine is education loan tax free and become eligible for tax deductions. The loan must be taken from a reputed lending institution or RBI-approved charitable trust. Loans taken from friends or family members do not qualify for tax deductions.

Eligible courses and purpose for education loan tax deduction

Under Section 80E, you can avail the tax benefits only on loans taken for higher education in India or abroad. The courses eligible for education loans include –

  • Any full-time course after completion of senior-secondary exams
  • Vocational courses
  • Post-graduation courses
  • Any other course recognized by the appropriate board.

What is the tax deduction amount?

The Income Tax Act sets no maximum limits on the tax benefits. For students wondering if this applies to them and is education loan tax free? You can only obtain tax benefits from the interest paid on the education loan. There are no tax deductions on the principal amount. Hence, you can claim a tax rebate on education loan’s entire interest amount for tax deduction without any education loan tax exemption limit.

What is the period of deduction?

Tax deductions on the total interest paid will begin from the year you start your loan repayment. However, the period for such deduction only extends up to a maximum of eight years, or until the interest on the loan is fully repaid, whichever is earlier.

If you repay your education loan within six years, then tax deductions will be permitted until six years only, not eight years. Similarly, if you exceed your loan tenure beyond eight years, then you cannot claim for any tax deductions, regardless of the education loan tax exemption limit.

Hence, it is advisable to calculate student loan interest rate pay off one’s loan within a period of eight years.

Documents needed to claim education loan tax deduction

The documents required to claim tax deduction under Section 80E are –

  1. Certificate from the financial institution or authorized charitable trust who granted the education loan.
  • The certificate must mention the principal amount and interest amount of the education loan taken for each financial year separately.

Step-by-step process to claim income tax deduction on education loan

Follow these step-by-step instructions to avail the education loan income tax benefit and education loan income tax rebate:

  1. Verify loan eligibility: Ensure your education loan is from a recognised lender or financial institution for higher studies in India or abroad.
  • Collect interest certificates: Obtain the lender’s certificate showing the interest paid to claim the education loan tax exemption.
  • Maintain records: Keep your loan agreement, bank statements, and repayment receipts ready for verification.
  • Compute deduction: Calculate student loan interest rate and total interest paid to know your deduction for education loan and education loan tax exemption limit.
  • Fill tax return: Enter the interest amount under Section 80E in your ITR.
  • Claim tax benefits: Submit supporting documents if required to avail the full tax rebate on education loan and education loan tax exemption.

Other benefits of taking an education loan?

  • If you are repaying the loan on time, the interest rates decrease.
  • Tuition fees, travel fees, and hostel fees are covered in the loan at the Bank’s discretion.
  • Education loans are very flexible; you can extend the repayment period if you are regular in your EMI payments. But extending your loan tenure will increase the total interest on the loan. So, it is advisable to calculate student loan interest rate and pay off your debts at the earliest.

Common mistakes to avoid when claiming education loan tax benefits

To effectively claim tax benefits on education loan and maximise your education loan tax benefit, avoid these mistakes:

  1. Ignoring eligibility: Ensure the loan qualifies for education loan tax exemption from approved banks.
  • Missing interest certificates: Required for education loan interest deduction and education loan income tax benefit.
  • Claiming principal: Only interest qualifies; is education loan tax free applies to interest, not principal.
  • Incorrect ITR entry: Can affect education loan income tax rebate or tax rebate on education loan.
  • Skipping records: Keep receipts for deduction for education loan.

Conclusion

Want to avail a loan for education at attractive personal loan interest rates? If so, then turn to Tata Capital – one of India’s leading lending institutions.

We offer customized loans as per your requirements. Simply use our online personal loan EMI calculator and adjust the loan amount and tenure. Plan out your loan in advance to have a smooth repayment experience.

Our personal loan eligibility criteria are relaxed for your convenience. Contact us to know all the details today!

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FAQs

Is education loan interest fully tax deductible under Section 80E?

Only the interest is eligible. The education loan interest deduction provides an education loan income tax benefit, not fully tax-free for principal repayment.

Who can claim the education loan tax benefit?

The student, parent, or co-borrower can claim tax benefits on education loan interest paid to avail the education loan income tax rebate under Section 80E.

What is the maximum deduction under 80E?

There’s no fixed education loan tax exemption limit. You can claim full deduction for education loan interest paid, enhancing your education loan income tax benefit.

For how many years can I claim education loan tax benefit?

You can claim the education loan tax benefit for up to eight consecutive years or until the loan interest is fully repaid.

Can loans from NBFCs or foreign banks claim benefits?

Only loans from approved financial institutions or lenders qualify for education loan tax exemption and education loan interest deduction under Section 80E.

Does principal repayment get tax benefit?

No, principal repayment is not eligible. Only interest qualifies for tax rebate on education loan and education loan income tax benefit under Section 80E.

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