Education loans play a very important role in making the dream of studying abroad in a top-notch course a reality. To reduce the financial burden, the Indian government provides tax benefits on education loans for the interest paid. You can claim tax deductions under section 80-E of the Income Tax Act for the interest paid on up to 8 years. Let’s know about some common FAQs on tax benefits on Education Loan.
Table of contents
- What tax benefits are available on education loans?
- Can tax benefits be availed for any course pursued abroad?
- Is the principal amount of the education loan eligible for tax benefits?
- When can I start claiming tax benefits on education loans?
- Are tax benefits available if the education loan is taken from a private lender?
- Can tax benefits be claimed for multiple education loans simultaneously?
- Is there an upper limit for claiming tax benefits on education loans?
- Can tax benefits be availed if the education loan is taken for a part-time course?
- What documents are required to claim tax benefits on education loans?
- Can tax benefits be claimed if the student is studying in India but the loan is taken from a foreign institution?
- Is the processing fee included in the tax benefits on education loans?
- Can parents claim tax benefits if they take an education loan for their child’s studies abroad?
- Is there a specific form to claim tax benefits on education loans?
- Can tax benefits be claimed if the student has a scholarship or grant?
- What happens if the education loan is transferred to another lender?
What tax benefits are available on education loans?
The interest paid on education loans is eligible for tax deductions under Section 80E of the Income Tax Act, 1961. This deduction is available for a maximum of 8 years or until the interest is fully repaid, whichever is earlier. The 8 years will be counted from the date when you start the education loan repayment.
Can tax benefits be availed for any course pursued abroad?
Yes, tax benefits are applicable for education loans taken for any undergraduate or postgraduate course pursued abroad, as long as it is recognized by competent authorities. Usually, the banks provide loans only for approved universities and top-notch courses and once your loan is approved, you will be eligible to claim deductions.
Also read: Facing loan rejection even if the score is good? Read and understand why your education loan is rejected even if your credit score is good.
Is the principal amount of the education loan eligible for tax benefits?
No, tax benefits under Section 80E are applicable only to the interest component of the education loan, not the principal amount. In the EMI amount, you pay a certain amount against the principal and a certain amount against interest. Only the amount you pay against the interest will be eligible for tax deduction.
When can I start claiming tax benefits on education loans?
The tax benefits can be claimed starting from the year in which the interest repayment begins and for the subsequent 7 years or until the interest is fully repaid, whichever is earlier. Hence, interest paid for up to 8 years will be eligible for tax deductions.
Are tax benefits available if the education loan is taken from a private lender?
Yes, tax benefits on education loans are available irrespective of whether the loan is taken from a public sector bank, private bank, or a financial institution. However, the institute shall be a regulated entity as per the guidelines of the Reserve Bank of India. You can claim tax dedication on an education loan taken from any private or public banks and NBFCs or any other financial institution.
Can tax benefits be claimed for multiple education loans simultaneously?
Yes, tax benefits can be claimed for multiple education loans taken for different family members, provided the loans are for their higher education. You can claim deductions for interest paid on all education loans irrespective of the number of loans, amount of loans etc.
Is there an upper limit for claiming tax benefits on education loans?
There is no specified limit on the maximum amount of deductions on interest paid on education loans. However, you will be required to obtain a certificate from your bank for the repayment made for a particular loan. The certificate must reflect the proper bifurcation of the principal and the interest amount of the education loan paid in a financial year. The total interest paid against the loan will be allowed for claiming deduction.
Can tax benefits be availed if the education loan is taken for a part-time course?
The education loan taken by you must be utilised only to pursue higher education in India or a foreign country to be eligible for tax deductions under section 80-E of the Income Tax Act. Education loans taken for any other type of study will not be eligible for tax benefits. Education loan for higher studies has been defined as any type of full-time program pursued after completing the senior secondary exam or equivalent. Hence, loans taken for such programs as UG or PG courses in engineering, management, diploma etc will be eligible for tax deduction. Any Part-time or distance course will not fall under this category so it may not qualify for deductions.
What documents are required to claim tax benefits on education loans?
You need to produce documents such as loan statements, interest certificates, loan amortization schedules, proof of education, income proof etc while filing your income tax return. Make sure that all the documents are duly attested and are the original copy. Never try to upload doctored documents as it may lead to legal consequences.
Can tax benefits be claimed if the student is studying in India but the loan is taken from a foreign institution?
No, tax benefits are available only if the student is pursuing the course abroad. Education loans taken by regulated entities as defined by the RBI will be eligible for tax benefits. Repayment made for any other loan will not be entertained.
Is the processing fee included in the tax benefits on education loans?
The processing fee paid for the loan is not eligible for tax benefits. Only the interest paid on the education loan is considered eligible for claiming tax deduction under Section 80 E of the Income Tax Act.
Can parents claim tax benefits if they take an education loan for their child’s studies abroad?
Yes, parents or legal guardians can claim tax benefits if they are the ones repaying the education loan. If your parent is a co-applicant and he/she is paying the EMIs for the education loan can claim tax benefits for the interest amount.
Also Read: Looking for a loan transfer to a private bank? Check all about IDFC First Bank education loan transfer
Is there a specific form to claim tax benefits on education loans?
Tax benefits on education loans can be claimed by filing the details in the relevant section of the income tax return form. You can download the form from the official website of Income Tax and can fill and submit the same with relevant documents.
Can tax benefits be claimed if the student has a scholarship or grant?
Yes, tax benefits are available even if the student receives a scholarship or grant, as long as the education loan is taken to cover additional expenses. If the loan is not involved and you have been admitted using the scholarship only, then there is no point in claiming a tax deduction.
What happens if the education loan is transferred to another lender?
If the education loan is transferred to another lender, the tax benefits can still be claimed, provided the loan is used for the same purpose – financing higher education abroad. For example, if you transfer your education loan from Bank ABC to Bank XYZ, then you will make EMI payments to Bank XYZ. When you are paying regular EMIs for your education loan, then you can claim tax deductions for interest paid. The terms and conditions will be the same as earlier.
Understanding tax benefits on education loans is important for Indian students planning to study abroad. By leveraging these benefits, students and their families can make informed financial decisions and pursue their educational aspirations. Always consult with a tax professional for personalized advice based on your specific situation.
To know more about the loan application process, the best bank accounts for students, forex and banking experience for global students or international money transfers, reach out to our experts at 1800572126 to help ease your study abroad experience.
