It can be expensive to pursue higher education, whether it's domestically or abroad. Whatever course you decide to take, you may need several lakhs of rupees all at once. To pay for your higher education expenses, you might take out an education loan if you lack the necessary funds or don't want to jeopardise your savings.
An education loan provides tremendous tax advantages in addition to covering your higher education expenses. Using tax deductions allowed by Section 80E of the Income Tax Act, 1961, you can lower your taxable income regardless of whether you are a parent or a student.
Key Point Of Education Loan Tax Benefit
Here are the some key point that you should know about the tax benefit on Education Loan:
Beginning with the year the borrower starts making loan repayments, the deductions are permitted for a maximum of eight years.
You may deduct any amount of interest paid for tax purposes under section 80 E, and there is no cap on the tax deduction for student loans.
Under Section 80C of the Income Tax Act, tuition fees paid to any colleges, universities, or other educational establishments in India for full-time courses are deductible from income. A maximum of INR 1.5 lakhs may be deducted each fiscal year under this clause.
If you borrow money to pay for your education instead of using your own money, you might save up to ten times more in taxes.
The loan applicant or the co-applicant may request an exemption from paying income taxes on college loans. Thus, even if the borrower goes back to India during the loan's repayment period, they or their co-applicant may still be eligible for the income tax break on student loan interest. Anyhow, this exception is only available to one of the two.
Eligibility Criteria Of Education Loan Tax Benefit
In accordance with the Income Tax Act of 1961, a person who has borrowed money for their higher education, that of their spouse, their children, or their own higher education, or if they are the person's legal guardian, may be qualified for a tax credit on the education loan under Section 80E.
The loan had to be obtained through a financial institution in order to qualify for the tax benefit. Only the interest paid on the student loan qualifies for the tax break; the principle is not eligible.
For instance, if your education loan's total EMI is Rs. 20,000 and each installment has Rs. 16,000 in principal and Rs. 4,000 in interest, you can only deduct the interest paid, or Rs. 4,000 per month, from your taxes under section 80 E. In light of the fact that the total EMI for your education loan would be Rs. 2,40,000, you are eligible to claim a tax deduction of Rs. 48,000 for the current fiscal year.
How to Claim Education Loan Tax Benefit
The co-applicant must disclose the whole amount of interest paid on the loan over the course of the prior year in their tax returns in order to deduct interest on an education loan from their income. By totaling the interest that has been paid in installments, one can determine this sum. It is vital to keep in mind that this tax reduction only applies to income tax and excludes other taxes, such as the education cess and other smaller levies.
People can file their taxes online, but they should remember to include the amount of interest paid on their student loans as well as any other relevant supporting documentation. When requesting this deduction, it is essential to follow the right steps to avoid having your request rejected.
Every time money is disbursed, the primary co-applicant must sign the LRS (Liberalised Remittance Scheme) form. To get your tax money back, you can either apply the TCS to your other tax debt or get a refund when you file your taxes each year.
Form 26AS, which you can use if you're self-employed and given to your employer so they can adjust your TDS, will show any tax paid on international remittances. If you're an employee, your employer will use it to calculate your TDS.
In order to be eligible for these tax benefits, borrowers must make sure they have all the required paperwork, including the loan agreement and evidence of interest and principal payments, as well as that their educational loan was properly disclosed on their tax return.There may be fines and penalties if the TCS on an overseas remittance is not paid.
The government has taken efforts to ensure that education is accessible to everyone by making education loans readily available and providing tax benefits for loan repayment. This loan can be helpful for students as well as for working adults who want to continue their education after a few years in the workforce.