An education loan not only helps a taxpayer to fund his/her education but also provides tax relief. A taxpayer can claim for income tax deduction on interest of education loan under Section 80E of Income Tax Act 1961. This relief is available only on interest portion of EMI but not on the principal component of the EMI. So in this way Section 80E helps save money on account of income tax liabilities.
Who Can Claim Deduction under Section 80E
Any individual who has taken education loan for higher education for self, spouse or children from any bank or financial institution or approved charitable institution. Either parents or student can claim deduction. Even the legal guardians are also eligible for deduction under this section.
Purpose of Education Loan
This loan has been taken to fund higher studies in India or outside India after senior secondary education. The courses under this loan can be vocational as well as regular both.
How Much Can be Deducted
Under Section 80E, total interest paid during the year can be deducted from the taxable income of the taxpayer. There is no maximum limit for deduction. But to claim deduction taxpayers must obtain a certificate for the same from the bank from where loan has been taken.
How Longer Deduction can be Claimed
Deduction under this section is available for only 8 years from the year taxpayer starts repaying the education loan or until the full amount of interest is repaid whichever is earlier. If loan tenure exceeds the maximum allowed period of 8 years, taxpayer cannot claim deduction after 8 years.