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What is the maximum amount that can be claimed as deduction for education loan?

dateKnowledge Centre Team dateOctober 16, 2020 views70 Views 4 Minute Read

What is the maximum amount that can be claimed as deduction for education loan?

Quality higher education is absolutely essential today as finding a good job is getting tougher and competitive every year. However, getting quality higher education doesn’t come cheap. The cost of higher education in a private institute is 3 times the cost compared to a government institution.

Today, a 4-year course in a decent private medical college costs around Rs. 15-20 lakhs; an engineering course in IIT or BITS Pilani will cost you Rs. 10-15 lakhs. If you want your child to complete an MBA from an IIM it will cost you anywhere between Rs. 25-30 lakhs. Cost of higher education abroad comes in the range of Rs. 50 lakh to 1 crore.

Thankfully, an education loan can help you fulfill the dreams of providing quality higher education to your child. You can also get education loan tax savings under Section 80E of the Income Tax Act if certain conditions are met. Let’s understand education loan tax benefits and how you can claim these tax deductions when you file your income tax return.

Tax deductions on education loan

Under Section 80E of the Income Tax Act, you can claim tax deductions only on the interest paid on your education loan during a financial year. You won’t get tax benefit on the repayment of the principal amount.

For example, if the total EMI of your education loan is Rs. 12,000, and Rs. 8,000 is the principal component and Rs. 4,000 is the interest component, you can only claim Rs. 4,000 per month. So, for the total EMI paid on the loan, you can claim Rs. 48,000 for the financial year as tax deductions.

There is no maximum limit for claiming tax deductions on interest paid for education loans. But you can only claim education loan tax savings or tax deductions for a maximum of 8 years.

Types of education loans eligible for tax deductions

You can claim tax deductions on education loans as tuition fees paid to any college, university or other educational institution under Section 80E of the Income Tax Act. You can take education loan tax benefits on courses enrolled by you, your spouse and children. Whether you have taken an education loan for a course in India or abroad, you can claim tax deductions on such loans in India. The only condition is that the loan should be taken from a financial institution approved by the RBI.

There are no restrictions for any particular field of study to take an education loan. If your child is pursuing any field of study after completing a senior secondary or equivalent exam, you can claim deductions on interests paid on education loan.

Who is eligible for education loan tax savings?

Education loan tax benefits are only allowed to an individual taxpayer. Hindu undivided families (HUFs) are not eligible for tax deductions under Section 80E of the Income Tax Act.

What is the maximum tax deduction allowed for education loans?

As mentioned above there is no maximum limit or ceiling for claiming tax deductions on interest paid on education loan. But, taking an education loan has a dual advantage. Apart from the tax deductions on interest paid, parents can claim income tax deductions on tuition fees paid to a school, college, university or any educational institution.

As a parent, you can claim tax benefits of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act on tuition fees paid for your children – up to a maximum of 2 children. If you have more than 2 children, you can claim tax deductions for 2 and let your spouse claim deduction for the remaining. However, to do that, your spouse has to pay the tuition fees for the extra child or children.

Things to remember

  • You can avail tax benefits on education loan only on the interest paid and not on the principal amount.
  • Education loan tax savings is only applicable for a maximum of loans taken for two children.
  • Tax deductions on tuition fees under Section 80C is only applicable for full-time courses pursued in an educational institution in India. It is not applicable for overseas education.
  • Development fees and transport fees are not eligible for deductions under Section 80C.
  • Section 80E education loan tax benefits are only allowed for a maximum period of 8 years. This 8 year is counted from the date of repaying the loan.

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Hi, I am Gajendra Kothari, a Chartered Financial Analyst. Today under the Tax video series by Canara HSBC Life Insurance Company we take a tax based question that’s important for parents and fresh graduates and post-graduates alike. If you’ve taken a loan to fund your child’s education or your own education, as may be the case with working professionals going for master’s degree, what is the maximum amount that can be eligible for deduction while taking an education loan?

  • The deduction under Section 80E is only available for the interest paid on the loan taken for higher education.
  • This amount has no upper limit, you can get tax benefit on the entire amount of interest paid but not on the principal amount. An education loan taken on behalf of your spouse, children, adopted children, student for whom the assessee is the legal guardian are applicable for deduction under section 80E of the income tax act.
  • The benefit can be claimed by the parent as well as the child, which means that the person who pays the education loan whether parent or child can start claiming this deduction.
  • Please Note the deduction can be availed only for 8 years.
  • Deduction can be claimed only if the loan is taken under the name of taxpayer and from a recognized charitable or financial institution. A financial institution refers to any bank that is eligible under the Banking Regulation Act, 1949 and is in the capacity to provide such services. A charitable institution can include any university or educational institution established solely for education purpose, trusts or institutions established for charitable or religious purpose, institutions referred under Section 80G.

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