[ad_1]
The cost of quality education after your higher secondary school is increasing every year. Many students and parents are preferring education loans to finance their higher education in good quality institutions. Various banks and financial institutions and some well-known trusts also offer such loan products. Even if you have the financial capacity to finance your child’s higher education, you can look for education loans if it is cheaper. However, it should be a decision based solely on your financial health and investment strategy.
Apart from funding higher education, education loan also saves tax for the person repaying the loan. The tax on the interest component of such loan repayment is avoided by claiming it as a deduction from the gross total income. This deduction is given under section 80E of the Income Tax Act. It is not linked to any other tax saving investment or deduction. It can be claimed irrespective of any other deduction.
Who can claim this deduction?
The person – the student or his/her parent who repays the education loan, can claim this deduction. If you have availed this loan as a student and are repaying it after completing your education, you can claim this deduction from your taxable income. If you have availed this loan for the education of your children and you are repaying it, then as a parent you can claim this deduction. This deduction can also be claimed on loan received for higher education of spouse or person for whom you are the legal guardian. This deduction cannot be claimed in respect of education loan of any other relative.
Till when can this deduction be claimed?
Generally, you repay the education loan through EMI. Only the interest component of this EMI is deductible. The year from which you start repaying this loan through EMI is the first year of repayment. Including this first year, you can claim deduction on interest for 8 years. You cannot claim this tax deduction after a period of 8 years. If you repay the entire education loan within a tenure of 5 years, you can claim the deduction only for the tenure of 5 years, not 8 years.
What is the amount of deduction that can be claimed?
The amount of interest paid in a particular year can be claimed as a deduction in the ITR filed for that year. This deduction cannot be claimed on the amount of repayment of principal of education loan. There is no upper limit or limit for the amount of deduction claimed. Suppose your gross total income is ₹ 10,00,000/- and during the year, you have paid interest of ₹ 200,000/- on education loan. This entire amount of interest can be claimed as deduction to save tax.
action points:
- If you have your own extra funds for education, you can evaluate the option of education loan using your own funds. To do this, savings on tax on account of education loan should be included in
- The tax savings you may lose out on in future years can be factored in before you take the decision of early repayment of education loan
- Loan repayment should be structured in such a way that tax deduction can be claimed in all the 8 years.
[ad_2]
Source link
