Is Education Loan Exempt from Tax?: Yes, an education loan is exempt from tax. Under Sections 80E and 80C of the income tax act, the education loan has few tax benefits. The total interest to be paid on the education loan is exempted from the tax.
Have a look at how education loan works, Tax deduction under section 80E, how to avail tax benefits for education loans, and their benefits.
How Does an Education Loan Works?
An education loan is taken for higher education from a bank to pursue a career goal. This loan amount is taken to complete the professional or technical courses after class 12 or graduation. Like other loans, students have to repay the loan amount with interest after the moratorium period. This interest amount is tax deductible, but there are a few things to consider:
- The tax deduction on education loans is based on Section 80E of the Income Tax Act, of 1961.
- The income tax benefit can be availed on the interest amount of the education loan. So, the principal amount can be claimed for any tax benefit.
- The total interest amount of the education loan repaid is deductible when calculating the taxable income.
- An individual can claim tax benefits if they have taken an education loan to support higher studies for themselves, their spouse, or children or guardian.
- The income tax deduction can be claimed by a person under the clause that the loan has been taken in their name.
- This special deduction can be availed for education loan to study abroad.
Tax Deduction Under Section 80E
While calculating the total income of a person, based on the provisions of this section, there will be a tax deduction, any amount paid by them in the last year, out of their income chargeable for tax, by way of interest on an education loan taken by them from a bank to pursue quality education or for their relative or legal guardian.
Section 80E of the Income Tax Act, 1961 is allowed for calculating the total income about the initial assessment year and also 7 assessment years succeeding the initial assessment year immediately until the interest referred to in the same sub-section is paid by the person in full.
How To Avail Tax Benefits for Education Loans?
If you are submitting the tax deductions forms and documents you need to simply mention the amount of interest they have paid for the last year for an education loan. Generally, education loans are paid in the form of EMIs. The interest amount from the year’s instalments has to be summed up and reported. Minor taxes are not included in the deduction.
Benefits of Education Loan
The benefits of education loans include are here:
- Students don’t need to pay any early repayment fees for education loans.
- In fact, interest rates decrease, if your bank finds that you are paying loan repayments on time.
- Education loans are generally flexible which means the individual can take their time to pay up, as long as they are making regular payments. The interest payable for the amount increases if you take longer to pay the amount.
- Education loans may not require any assets but they need a guarantor.
- Tuition fees, hostel fees, and travel fees are covered in the loan.
- Education loans can be taken for diplomas and other professional courses as long as they are been taken for higher education by the bank you are borrowing from.
FAQs on Is Education Loan is Exempt from Tax
- Can I get a tax exemption on an education loan?
No, you can’t get tax exemption on education loan principal amount. But you can get tax exemption on the interest of an education loan for 8 years.
- Is education fee exempted from income tax?
Section 80C of the Income Tax Act provides tax deductions on tuition fees or education fees paid by a parent towards educating their children.
- Which loan is exempt from tax?
Home loan is exempt from tax.
- Can I get an education loan without an income tax return?
Yes, students can get education loans without income tax returns.
In a Nutshell
Hoping that the data shared here about Is Education Loan is Exempt from Tax is useful for you. Education loan is exempted from the tax is only interest for 8 years. Get to know more articles like what is moratorium period in education loan, How To Pay Education Loan Without Interest, at our site.