The deduction is allowable only on payment basis, and to be eligible to claim this deduction, the education loan taken has to be from any such institution or bank that is approved by the government.
To finance secondary or higher education, most people now opt for an education loan, given the rise in education cost over the years. To give additional benefits and relief to borrowers, against such costs, income tax benefit under Section 80E of the Income Tax Act (ITA) is offered. For up to two children, in India, borrowers are eligible to claim a tax deduction for tuition fees paid to any college, university, or other educational institution.
However, while computing tax liability during a financial year, be aware of the various tax deductions and exemptions available under the I-T Act. If you have also availed an education loan or are planning to take one, find out how you can avail of tax benefits on that loan.
Tax benefits on interest paid: Borrowers who have taken an education loan can make use of tax benefits on the interest paid on education loans. This tax benefit can be availed on the interest paid under Section 80E. Borrowers can avail of this benefit for themselves, their children, spouse and also in case if they are a legal guardian of any child. Tax deduction on repayment of interest under section 80E of the I-T Act allows a deduction for up to 8 years in a row starting from the year in which the first interest payment was made. Additionally, there are no restrictions on the quantum of deduction and the course for which the education loan is taken. It can be either part-time or full-time. Moreover, the deduction can be availed for education anywhere in the world.
Keep in mind that the deduction is allowable only on payment basis, and to be eligible to claim this deduction, the education loan taken has to be from any such institution or bank that is approved by the government.
Payment of tuition fee of children: One of the main criteria borrowers should keep in mind is that to claim tax benefit against tuition fees, the course for which the education loan has been taken, has to be full-time education in India. For payment of tuition fees of children, the overall claim is restricted to Rs 1,50,000 lakh in a year, unlike tax benefits on interest paid for tuition fees.
Note that, to avail tax benefits for tuition fees for children, the educational institution has to be situated in India, unlike in case of interest payment for a loan which can be for education anywhere in the world.
Exempt allowance: This benefit can be availed both by the salaried and self-employed. The education allowance received from an employer up to Rs 100 per month for each child along with hostel allowance up to Rs 300 for each child, for a maximum of two children, is exempted. Moreover, for salaried, certain allowances received from their employer are fully exempted.
Keep in mind that these claims can only be exempted if the borrower’s employer provides such allowance as part of his/her salary. Hence, find it out in advance with your employer so that you do not get disappointed later.