Admission season is on and it’s that time of the year when every student is hoping to get in to a good college to pursue their higher studies. Once the admissions are sorted the next challenging step is to arrange the finances. The admission fee for higher studies is usually not a small amount and many parents and students find it difficult to arrange for it. Thankfully education loans are available in such situations that enable students to pursue their higher studies smoothly. Additionally, one can also save on taxes while incurring this expense. Before we move on to the tax deductions for this, here are some essentials you need to know while applying for an education loan.
Students in the age group of 18-35 who wish to pursue higher education need to be an Indian resident having secured admission in any of the bank’s list of approved course or universities for availing an education loan.
The loan covers the following expenses:
Tuition & hostel fee will be disbursed directly to the educational Institute as per the schedule of fee given by the Institute/college.
As far as the tax implications are concerned, only the interest paid on an educational loan is allowed as deduction u/s. 80E of The Income Tax Act, 1961(“ITA”), out of his/her income chargeable to tax i.e. deduction will be allowed for a period of 8 years only when actual interest is paid.
The loan should be taken either by an individual for pursuing higher education of self, spouse or his /her children. Hence parents are also eligible to claim deduction of interest paid by them on loan taken for their children’s education. Loan should be taken from an approved financial institution or from an institution established for charitable purposes and approved by the prescribed authority under clause (23C) of section 10 or an institution referred to in clause (a) of sub-section (2) of section 80G. Loan will be applicable for full-time studies for any graduate or postgraduate course in engineering, medicine, management or for post-graduate course in applied sciences or pure sciences including mathematics and statistics.
Please note: 1) An Individual is also entitled to claim deduction u/s. 80 C of The Income Tax Act, 1961 up to Rs. 1,00,000 in the year of payment in respect of as tuition fees (excluding any payment towards any development fees or donation or payment of similar nature), whether at the time of admission or thereafter,
(a) To any university, college, school or other educational institution situated within India;
(b) For the purpose of full-time education of self, spouse or his /her children’s;
2) Financial institution” means a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act); or any other financial institution which the Central Government may, by notification in the Official Gazette, specify in this behalf.
The article is written by Mr. Vikram Ramchand, Founder at MakeMyReturns.com