Tax Benefits on Education Loan...:))

Higher education is no more the prerogative of the rich and the privileged. To acquire it, all you need is hard work and strong will, and as far as the money part is concerned, there is always an educational loan. After all, educational loans are meant to ensure that there are no limitations on getting the best education. They make several courses affordable for a large number of people. Like other loans,educational loans too carry tax benefits, but they have certain conditions attached to them.

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Is tax benefit available on all educational loans?

Not all educational loans come with the tax benefit; only those loans taken for higher education are eligible for a tax benefit (Section 80E). Higher education means full-time studies for any graduate or postgraduate course in engineering, medicine, management or for a postgraduate course in applied sciences or pure sciences, including mathematics and statistics. While the benefit would be available for all institutes for higher education, there is a restriction on the fact that this benefit is available only for an individual and that the loan should be taken from a financial institution or any approved charitable institution

Highlights

• Education loans for higher education can only get the tax benefit
• The benefit is extended to loans taken for the spouse and children as well
• Only interest amount is allowed as deduction
• The benefit on interest payment can be availed for 8 continuous years

Remember, this benefit is related to the loan and is different from the tuition fee benefit available as a deduction under the Rs 1 lakh limit (Section 80C).

Who can avail the tax benefit?

Earlier, the tax benefit was restricted to the person who had taken the loan for his/her own studies. This meant that a child had to take the loan in his/her own name and then he/she could have the tax benefit.

But now the benefit is extended to persons who take a loan for their relatives' education. Relatives include the spouse and children only. It defines the scope of the coverage clearly. No other person apart from the spouse and children are covered, so loan for brothers or sisters would not get the tax benefit.

What is the benefit?

There are two aspects to an educational loan. One, a regular repayment will have to be done on the loan and two, the tax benefit will be available only on the interest part of the loan.

The repayment will comprise an interest component and the principal repayment component. The benefit can be availed on the interest part that is being repaid to the loan provider. So at the end of the year, the borrower will have to separate the principal from the interest component to get the benefit.

Is there any time limit?

There is a time limit for which the benefit will be available on an educational loan, and it helps determine the total quantum of the benefit. The benefit on interest component is available for 8 continuous years. These 8 years are counted from the year in which the borrower starts repaying interest on the loan.

• If a loan is repaid before this time period then the benefit will be over along with it.
• Time limit puts pressure on the borrower, ensuring that the loan is paid back by this time.
• There is no overall limit for the amount of interest allowed as a deduction. This ensures that the entire loan amount is serviced for the purpose of the benefit.
• An education loan is structured in such a manner that the repayment will start only when the student starts earning after the course is over.
• There is also a time period during which the course is being completed when only the interest working adds to the amount outstanding but there is no repayment taking place during that time. This is different from other loans where the repayment starts immediately.