Income tax returns: Is an education loan to fund higher studies of your brother or sister eligible for tax benefits?

By: | Published: September 4, 2017 12:58 PM

Section 80E of the Income Tax Act allows an individual to claim tax deduction for actual amount of interest paid during the year, on an education loan taken for higher studies.

education loan, higher studies, higher studies of brother, higher studies of sister, eligible for tax benefits, tax benefits, Section 80E, Income Tax ActEducation loan should be taken from any financial institution or any approved charitable institution.

Delhi-based Ramesh Kumar had some time back taken an education loan for the higher studies of his younger bother. However, when he decided to claim tax deduction in respect of the interest paid on the education loan, his CA told him that he was not entitled for any tax break as his father was alive and he was not the legal guardian of his brother.

The fact is that like Ramesh while many people are aware that tax benefits are allowed on an education loan for higher studies, but they are not aware who are qualified for this tax break and what are the conditions for that.

In fact, Section 80E of the Income Tax Act allows an individual to claim tax deduction for actual amount of interest paid during the year, on an education loan taken for higher studies of the individual himself or for any of his relative. Relative for this purpose will include spouse and children of that individual or the student for whom that individual is the legal guardian.

“As such one cannot claim the deduction for interest paid on the loan taken for the education of non-covered relatives like brother, sister or cousin, etc. unless the individual can prove that he is a legal guardian for that relative. However, if you are a legal guardian for any person (whether relative or not), then you are qualified to claim the deduction for the interest paid on a loan taken for the higher studies of that dependent,” says Chetan Chandak, Head of Tax Research, H&R Block India.

Besides there are a few other conditions which need to be satisfied for claiming deduction u/s 80E as under:

# Loan should be taken from any financial institution or any approved charitable institution,

# Loan should be for the purpose of pursuing higher education,

# It should be a course of study pursued after passing the Senior Secondary Examination or its equivalent from any recognized school, board or university

# The deduction shall be allowed for 8 assessment years, including the year in which the taxpayer starts repaying the interest on the said loan.

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