Tax Benefits of Education Loan on Foreign Studies Under Section 80E
An education loan helps you not only finance your foreign studies but it can save you a lot of tax as well. If you have taken an education loan and are repaying the same, then the interest paid on that education loan is allowed as a deduction from the total income under Section 80E. However, the deduction is provided only for the interest part of the EMI.
There is no tax benefit for the principal part of the EMI.
Essential Conditions for Claiming This Deduction Are:
1. Who can claim this deduction?
Only an individual can claim this deduction. It is not available to HUF or any other kind of taxpayer. The loan should be taken for the higher education of self, spouse or children or for a student for whom the individual is a legal guardian. Parents can easily claim this deduction for the loan taken for the higher studies of their children.
2. Where can this loan 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 this deduction.
3. 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 vocational as well as regular courses.
4. 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, however, need to obtain a certificate from your Bank. Such certificate should segregate the principal and the interest portion of the education loan paid by you during the financial year. The total interest paid will be allowed as a deduction. No Tax benefit is allowed for the principal repayment.
5. 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. This means if the complete repayment of the loan is 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 an education loan is paid within eight years.
Frequently asked Questions
Can I claim deduction for principal as well as interest amount of the EMI which I am paying for education loan under 80E?No, you cannot claim deduction under section 80E for the principal amount of EMI. Deduction can be claimed only for the interest part of the EMI.
How much amount can I claim as deduction under this section?There is no limit on the maximum amount which is allowed as deduction.
I want to avail higher education loan for my child who is going to study in abroad. So can i get deduction under 80E?Yes, you can claim deduction under section 80E even if your child is going abroad for higher education and it includes both vocational as well as regular courses.
Is Section 80E part of Section 80C?Section 80C of the Income Tax Act provides deduction in respect of the tuition fees paid for the education. However, section 80E of the Income Tax Act provides deduction in respect of interest paid on educational loan taken for higher education.