Who can claim education loan tax benefits?
It is every parents dream and duty to give the best education possible. Education is what will give our children a bright future. However, with the cost of education getting higher in India it is necessary to plan for the future of our children. Many people start saving money for their child's education at a very early stage even then with inflation and cost of education rising the saved money might just not be sufficient.
This is where education loans come in, where the loan is taken by the parents for their child and they start paying it immediately or they take it under the name of their child who can start paying it once they graduate and start working.
Education is very important for the growth of any individual, who in turn will help in the betterment of the country. Because of this, the Government of India gives tax benefits on the interest paid for any education loan. There is no tax deduction for the principal part of the EMI.
Now comes the important question – Who can claim this tax benefit?
According to the Indian Government, only an individual can claim the tax benefit. No one under joint loans cannot claim the benefits. The loan needs to be under the name of the taxpayer that is either the parents or children.
Therefore, there are four scenarios for this claim
1. Claimed by parents – Any one of the parent who took the loan or is a co signee of the loan and is paying the monthly EMI is eligible for the claim
2. Claimed by student – The student after graduation and acquiring a job when he starts to pay the EMI can claim for the benefits
3. Claimed by spouse – When any one of the spouse is paying the loan for the other that person can claim the tax benefits
4. Claimed by legal guardian – This the case where the loan is taken by a legal guardian for the child who can be anyone from a sibling to a relative or close friend, who can claim the tax benefits for paying the EMI
The other conditions that need satisfying are
From where the loan can be availed:
The loan must be taken from any Bank / financial institution or any approved charitable institutions. Loans taken from friends or relatives do not qualify for the deduction.
The purpose of the loan:
The loan should be taken to pursue higher studies; it can be taken for higher studies in India or outside India. Higher studies includes all the fields of study pursued after passing the senior secondary examination or its equivalent exam as well as bachelor's degree as in the case of students applying for post-graduation. It includes both the Vocational courses as well as the regular courses.
Deduction Amount:
The deduction allowed is the total interest part of the EMI paid during the financial year. There is no limit on the maximum amount that is allowed as deduction. You will need to obtain a certificate from your Bank which should have a break-up of the principal and interest portion of the education loan paid by you during the financial year. The total interest paid will be allowed as deduction. No Tax benefit is allowed for the principal repayment.
Period of Deduction:
One thing of note is that any loan that exceeds 8 years will not be subject to the tax benefits.
So, it is best to complete the loan before 8 years.
The deduction for the interest on loan starts from the year in which you start repaying the loan. It is available only for 8 years starting from the day you start paying the EMI till the last day of due payment. For example, if entire payments are done in 5 years only, then tax deduction will be allowed for 5 years and not 8 years.
Summary
The education loan tax benefits are designed in a way to help more Indians to aspire to be professionals in their chosen path of higher education, the tax benefits would ease the burden on education loans and students and parents should make sure they claim the benefits.