Tax Benefits under Education Loan
The educational loan must have been taken from a financial institution or any approved charitable institution for the purpose of pursuing higher education, so that it will be eligible for tax benefit under prevailed tax laws. You will get the tax benefit on an education loan only if the loan is in your name and is taken for the purpose of higher education of yourself, your spouse or your children. Loan taken for the higher education of siblings (brother or sister) are not covered in this regard. You can claim tax benefit under section 80E of Income Tax Act of 1961.
The Finance Act, 2005 has substituted Section 80-E, whereby only the interest on loan taken for higher education is eligible for deduction as against the earlier provision which allowed deduction in respect of repayment of loan. The tax benefit can be availed only on the interest paid not on the principal.
Earlier, the lesser of the two amounts were eligible for tax deduction: total amount (includes principal repaid and interest paid) paid during the year or Rs 40,000. But now it has been changed and you can claim only the entire interest paid on educational loan from your taxable income without any limit. These deductions are available only for a period of eight years starting from the year in which you start paying the interest.
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