Education Loan - Tax Exemption Explained

Higher education is now more important than ever, as obtaining a suitable career becomes more difficult and competitive every year. Getting a good higher education, on the other hand, is not inexpensive. In comparison to a government university, the expense of higher education in a private institute is three times more.

Thankfully, an education loan can assist you in realising your desire of giving your child with a high-quality higher education. If certain circumstances are satisfied, you may be eligible for college loan tax savings under Section 80E of the Internal Revenue Code. Let's look at college loan tax benefits and how to claim them on your income tax return.

Deductions for student loans

Only the interest paid on your school loan during a financial year is eligible for tax deductions under Section 80E of the Income Tax Act. The repayment of the principal amount will not result in a tax advantage.

There is no upper limit on the amount of interest that may be claimed as a tax deduction for school loans. However, you may only claim tax savings or deductions for college loans for a maximum of 8 years.

Education loans that are eligible for tax deductions

Section 80E allows you to deduct school loans as tuition costs paid to any college, university, or other educational institution. You, your spouse, and your children can all benefit from college loan tax benefits. You can claim tax deductions on college loans in India, whether you took them for a study in India or overseas. The sole requirement is that the loan be obtained from a financial institution that has been authorised by the RBI.

There are no limits on taking out an education loan for any particular subject of study. You can deduct the interest paid on an education loan if your kid is pursuing any field of study after finishing a senior secondary or comparable test.

Who qualifies for college loan tax benefits?

Individual taxpayers are exclusively eligible for education loan tax advantages. 

What is the maximum amount of tax relief available for student loans?

As previously stated, there is no maximum or minimum amount that may be claimed as a tax deduction for interest paid on an education loan. Taking up an education loan, on the other hand, provides two benefits. Parents can claim income tax deductions on tuition fees paid to a school, college, university, or other educational institution, in addition to interest paid.

As a parent, you can claim tax advantages of up to Rs. 1.5 lakh on tuition fees paid for your children, up to a maximum of two children, under Section 80C of the Income Tax Act. If you have more than two children, you can claim tax deductions for two and defer the rest to your spouse.

However, your spouse must pay the tuition expenses for the additional kid or children in order to do so.

Things to keep in mind

Only the interest paid on an education loan is eligible for tax advantages, not the principle.

The tax savings on education loans are limited to a total of two children's loans.

Tuition fee deductions under Section 80C are only available for full-time courses taken in an Indian educational institution. It does not apply to international education.

Development and transportation expenses are not eligible for Section 80C deductions.

Education loan tax advantages under Section 80E are only available for a maximum of eight years.