New Delhi: Interest paid on an education loan qualify for income tax deduction under Section 80E of Income Tax Act. It may be noted that like other loans such as home loan, there is no limit on the amount of deduction one can claim towards interest paid on an education loan. However, one can claim the deduction for a maximum period of 8 consecutive years, starting from the year in which the borrower starts repayment of loan.
Here are five things you should know about tax benefit on education loan
1) Typically banks provide a moratorium period in case of education loan for repayment of principal so that you complete your education. However, banks charge interest during that period. It is advisable that you pay the interest part so that you can claim income tax deduction on the interest amount.
2) The tax benefit on education loan can only be claimed by the person who has taken the loan even if he is not the actual beneficiary.
3) If your father has taken an education loan for your studies, then the tax benefit can only be claimed by your father and not you. Similarly, if the loan is in your name, your father can not claim tax benefit on the interest paid even if he pays the interest from his taxable income. If both of you repay the loan from your taxable income, then also your father can only claim the tax benefit as the loan is against his name.
5) It may be noted that all education loans do not qualify for tax benefit. Only loans taken from banks and specified financial institutions notified by the tax department qualify for tax benefit. So, it is advisable that before taking an education loan from a Non-Banking Financial Company (NBFC), you should check if loan from the agency qualifies for tax benefit.
3) Tax benefit is available only on the interest amount and not on the principal repayment part. Unlike home loan where the capital repayment to the extent of Rs 1.5 lakh in a year qualify for tax benefit under Section 80C, no tax deduction is given on principal repayment of an education loan.