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Tax Benefits of Education Loan on Foreign Studies Under Section 80E

An Education Loan helps you not only to finance the foreign studies but it can save a lot of tax also. If you have taken education loan and are repaying the same, then interest paid on education loan is allowed as a deduction from the total income u/s 80E. However, the deduction is provided only for interest part of the EMI.

There is no tax benefit for the principal part of the EMI.

Section 80E

Essential Conditions for Claiming This Deduction Are:

Who can claim this deduction: Only an individual can claim this deduction. It is not available to HUF or any other kind of taxpayer. And the loan should be taken for the higher education of self, spouse or children or the student for whom the individual is a legal guardian. Thus parents can easily claim this deduction for the loan taken for the higher studies of their children.

From where the loan should be taken: The loan should be taken from any Bank / financial institution or any approved charitable institutions. Loans taken from friends or relatives don’t qualify for the deduction.

The purpose of the loan: The loan should be taken to pursue higher studies. It does not matter whether such education loan is taken for higher studies in India or outside India. Higher studies include all the fields of study pursued after passing the senior secondary examination or its equivalent exam. It includes both the Vocational courses as well as the regular courses.

Deduction Amount: The deduction allowed is the total interest part of the EMI paid during the financial year. There is no limit on the maximum amount that is allowed as deduction. You need to obtain a certificate from your Bank. Such certificate should segregate the principal and interest portion of the education loan paid by you during the financial year. The total interest paid will be allowed as deduction. No Tax benefit is allowed for the principal repayment.

Period of Deduction: The deduction for the interest on loan starts from the year in which you start repaying the loan. It is available only for 8 years starting from the year in which you start repaying the loan or until the interest is fully repaid whichever is earlier. It means if entire payments are done in 5 years only, then tax deduction will be allowed for 5 years and not 8 years.

It should also be noted that if your loan tenure exceeds 8 years, then you cannot claim a deduction for the interest paid beyond 8 years. So it is always advisable that education loan should be paid within eight years.

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