Five things you need to know about education loan tax benefits.

When you plan to pursue higher education in the country or even abroad, a personal loan for education is the fastest way to support your dream. Besides financing your high school, student loans come with significant tax benefits for the principal or borrower. Whether you are a student or a parent, you can benefit from tax deductions on the full interest portion of loan repayments. Here's what you need to know about the tax benefits of student loans.

Eligibility

According to the statute, only one person can get the tax benefit, and there is no deduction based on joint loans. Having said that, you can get tax benefits under Section 80E of the Income Tax Act, 1961, if you are:

1. Parents taking loans for their children as the first borrower or co-signer
2. A student receiving the loan can claim this deduction after earning employment from taxable income.
3. The wife pays the money
4. A legal guardian who pays for the child may receive a tax benefit

Purpose of the loan

Under section 80E, you can only avail tax deduction for educational loans taken out for higher studies in India or abroad. Higher education includes all regular courses you need to attend after passing your high school exam or equivalent from a recognized board. It also includes any graduate degrees you want to apply for. In addition, you can benefit from tax deductions for vocational training.

Deductible amount

When it comes to student loans, you have to remember that the tax benefit is only on the interest portion of the loan and not on the principal amount. In any given financial year, you can claim all interest paid as a tax deduction, and there is no limit to your savings. This compensates for the lack of tax benefits and capital gains, making it a cheaper option.

Tax deduction period

The tax benefits of student loans are only available for a limited time. In simple terms, the year of starting repayment of the loan through EMI is considered as the first year of repayment. From now on, including this first year, you can only benefit from tax deductions and interest for a maximum of 8 years.

For example, if you repay your money in 7 years, the tax deduction will only last for 7 years, not 8 years.

Source of income

Tax exemption under section 80E is not available on all education loans, that is to say, the tax benefit is only if you take the loan from any approved bank/financial institution or charity. You can't use tax savings and loans that your friends or family get for higher education.