Higher education – especially in professional courses like MBA, Medicine, Engineering etc – is a costly affair. A higher rate of inflation in the sector making it more expensive year by year. So, for parents in the middle or lower earning groups, it’s become very hard to finance the higher studies of their children, unless the students get a good scholarship.
In absence of scholarships or sufficient investments made for the purpose, the parents may not have any other choice, but to borrow money to fund the higher studies of their children.
Compared to other loans, education loans are not only cheaper – borrowers may also get discounts and subsidies on interest rates – but also provide higher tax benefits on repayments u/s 80E of the Income Tax Act.
Describing the provisions u/s 80E and how one can take advantage of it, Ankit Mehra, CEO and Founder, GyanDhan, said, “Section 80E of the Income Tax Act Act allows education loan borrowers to claim interest paid on education loans as a deduction. The deduction, however, is allowed only on the interest component of the loan and not the principal amount of the loan.”
But can parents claim a tax deduction on their child’s education loan?
“Parents who have taken an education loan for their child’s higher education in India or abroad can claim this deduction. It helps them save tax on their total income. Moreover, this benefit is available over and above the Rs 1.5 lakh deduction permitted under Section 80C. The deduction can be claimed from the time they start repaying the loan and up to 8 years or when the repayment ends, whichever is earlier,” said Mehra.
Mehra points out the steps to be taken to claim the deduction –
- Your bank will issue a tax certificate with the amount you paid as interest on the education loan in a financial year.
- While filing your ITR, fill in the interest amount mentioned in your certificate.
- If you are salaried, inform your company’s HR department in time so that less TDS is deducted from your pay. If the TDS is deducted without considering the education loan tax deduction, you can apply to get a refund while filing tax returns. Business owners should inform their CA on time.