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Tax benefits on study loans

Education loans for certain types of courses can result in tax deductions under section 80E, reports Harsh Roongta.

india Updated: Dec 21, 2007 22:55 IST

Education loans for students to pursue higher studies in India or abroad have become popular among Indians today. In fact, it has become the norm as opposed to even 15 years ago when anyone who wanted to pursue further studies would look at an indulgent relative or friends to stump up the required money. The government, on its part, provides tax benefits on such loans. However it must be noted that the benefits, under section 80E, are provided only for certain specified study subjects.

The tax deduction benefits are available for the interest paid on the educational loan. The benefits do not include the principal repaid for the education loan.

Earlier, only the lesser of the two amounts was eligible for tax deduction: Either the total amount paid during the year (principal repaid and interest paid) or Rs 40,000. Now, this has been done away with; you can deduct the entire interest amount from your taxable income, without any limits. Deductions for this loan are available only for a period of eight years starting from the year in which you start paying the interest on the student loan. There are some important points to keep in mind, for claiming tax deduction benefits for the education loan:

Tax benefits are available on such a loan only if taken to pursue full-times courses in India or abroad. So, in effect, loans taken for part-time and long-distance courses are not eligible for tax deductions. The course has to be for full-time studies for any graduate or postgraduate course in engineering, medicine, management, or for postgraduate course in applied sciences or pure sciences including mathematics and statistics. Remember however that study loans taken for siblings are not eligible for tax deduction under section 80E. Only study loans taken in your name and taken for the purpose of higher education of yourself, your spouse or your children are covered under this section.

If you have taken a loan from your employer, family or friends for academic pursuits, you will not be able to claim tax deduction benefits.

Therefore, only if the education loan has been taken from a financial institution, bank or an approved charitable institution, it is eligible for tax deductions.

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