One of the best ways to fund your higher education in India or abroad is by taking an education loan. An education loan covers almost every educational expense. All the major banking institutions- public as well as private banks offer education loans to students; provided the student meets all the requirements and conditions set by the respective bank.

The advantages of taking an education loan are aplenty. One of the major advantages of taking an education loan is tax benefit. Education loans when taken from approved financial institutions not only funds higher education, but also offers tax benefits in the form of a deduction. It helps to save up a significant amount of money on tax.

What is the Tax Benefit of taking Education Loan?

The tax benefit of taking education loan is that the interest paid on education loan can be claimed as deduction while calculating your taxable income without any fixed upper limit as per the income tax law- Section 80E of the Income Tax Act of India, 1961. This tax deduction claim is available to an individual only if the following conditions are met:

• Tax deduction is for individual, not for HUF or any other assessee
• Tax deduction is available if the actual interest is paid on the education loan
• The entire interest paid is eligible for deduction without any fixed cap
• The interest should have been paid on education loan taken from an approved financial institution or any charitable institution
• The education loan should have been taken to pursue higher education of the individual, children or spouse of the individual, or the legal guardian of the student (education loan taken for siblings is not eligible for tax benefits)

** Remember the “Principal amount” is not applicable for tax benefit.

What is meant by higher education?

The Income Tax Act, 1961 defines higher education as- Higher education for the purpose of tax deduction comprises of full-time graduate/post-graduate programs in medicine, engineering, medicine or post-graduate courses in pure science or applied science, including statistics and mathematics. It also involves “all fields of study”, including vocational studies pursued after completion of the Senior Secondary Examination or its equivalent from any board, university or school recognized by the State or Central Government or any other authorized authority.

Who can claim the Tax benefit?

As per Section 80E of the Income Tax Act, 1961 , an individual who has taken education loan for higher studies for himself, children or spouse; or if you are a legal guardian of the individual who has taken the education loan can claim the tax benefit on an education loan.

What is the duration to claim the Tax benefit?

The tax benefit can be claimed for a maximum of 8 consecutive years, starting from the year in which you begin to pay the interest on the education loan and for 7 consecutive years after that. However, if your loan period goes beyond 8 years, you cannot claim the income tax deduction beyond the consecutive duration of 8 years. Example: If you service the education loan over a ten-year period, the interests you pay in the last 2 years cannot be claimed as an income tax deduction.

So, grab your higher education degree while education loan takes cares of all your expenses as well as taxes.