What is the maximum amount that can be claimed as a deduction for education loan?
The Section 80E of Income Tax Act 1961, allows tax rebate on payments of educational loans taken for higher studies. (The term “higher education” stands for any course or study pursued after the completion of the senior secondary exam or it's alike from a board authorised by the Government of India). The benefits include:
• The entire interest that will be paid on the education loan will not be taxed
• There is no cap on the tax benefits that can be claimed. Moreover, the entire interest that you pay will be deducted from your taxable income
• Only the interest part of the EMIs will be tax-deductible. There will be no deductions on the principal component of the EMI
However, there are certain conditions that must be met to claim these tax rebates. They are:
- The taxpayer must be an individual and not HUF (Hindu undivided family) or any other kind of taxpayer
- Deductions can be claimed if the loan is availed for the purpose of pursuing higher education
- Deductions are only allowed if the loan is taken under the name of the taxpayer
- The deductions can be availed for eight years, from the beginning of the repayment
- The loan can be taken by any taxpayer towards fulfilling the educational requirement of him/her self, his/her spouse and children
- Only the loans provided by recognised charitable organisations and financial institutions are eligible for the tax deductions. Loans that are obtained from relatives or friends do not qualify for tax deductions.