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Here’s How You Can Get A Tax Benefit With Your Education Loan
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"An education loan is one of the most important loans for students who are looking to fund their education. These loans are available for all levels of education, whether it is school or college education. These loans are also called student loans and are available for college education both in India and abroad. But, did you know you could get a tax benefit for opting for an educational loan?
Section 80E is an often forgotten section of the Income Tax Act. But this section can help you save tax if you have an educational loan.
Section 80E: Tax deduction for interest on educational loan:
This section provides a deduction on the interest paid for servicing an educational loan. No benefit is available for the principal component of the student loan.
This deduction is available for the entire amount of interest paid on education loan. There is no limit for the interest deduction. However, since this is a deduction, it is automatically restricted to the gross income of the taxpayer. For example, if the income of the taxpayer is Rs. 8,00,000 and the interest on education loan is Rs. 8,50,000, the total deduction will be restricted to Rs. 8,00,000 only.
This benefit under Section 80E can only be availed for loans taken for higher studies. This means loans taken for primary education are not allowed as a deduction. The section does not distinguish between the subject of study and the place of study i.e in India or abroad. However, it specifies that higher studies include undergraduate and graduate studies. The student will have to complete higher secondary exams to avail this benefit.
The student loan must also be taken from a financial institution or a charitable trust giving educational loans to students. If the loan is taken from parents, relatives or friends, then this interest does not matter.
This deduction under Section 80E is only available to an individual. The loan should be taken for higher studies for self, spouse, children or students for whom the taxpayer is a legal guardian. This means parents can avail tax deduction on interest for loans taken for their children.
A deduction under Section 80E of the Income Tax Act is available for 8 financial years starting from the time repayment of the loan begins. To get this deduction, the taxpayer will need to get a certificate from the bank that shows the total interest paid to the bank for the financial year. This breakup needs to be attached with the income tax return.
Author Bio:- Neha Sharma is a finance student who loves to write in her free time. She has spent considerable time researching about education loans.Through her work, she informs how to claim tax benefits
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