A higher education loan qualifies for deduction if it is taken from any financial institution or approved charitable institution. Personal loans from individuals, relatives and friends, are not eligible for this deduction, as is the case with home loan.
Deduction for Interest on Higher Education Loan
You can claim deduction for interest for up to eight years from the start of the assessment year when you begin repaying your higher education loan. There is no limit on the amount of interest on which deduction is allowed for higher education loans.
Payment should be made from taxable income only. Start paying interest right from the first year to maximize income tax benefits. Banks charge lower rates of interest too from those paying interest during the study period.
Higher Education Loan: Support Your Child
Parents should encourage children to take higher education loans and save their funds for retirement.
This helps children save money compulsorily, when they have a job but no family. Otherwise, they might spend all their income in the initial years and you will become dependent on them during retirement years.
You can always support your children as a surety for the higher education loans need but funds
should be borrowed keeping in view the rate of interest, repayment tenure, surplus income of new joiners and no limit tax benefit. Taking a car loan will not help a salaried person save tax . However if you have taken a higher education loan, you can keep your tax liability low and your parents’ heads high. As a parent, a better gift to your child is to fund his/her higher education, instead of a car!
Claim on Higher Education Loans
As the Government, under section 80E, has said that you can claim deduction if you have paid interest, out of your income chargeable to tax, on the loan taken for your higher education or your relative’s (spouse or children) higher education. Now the legal guardian is also allowed to claim deduction. Higher education involves full-time studies for a graduate or post-graduate course in engineering, medicine, management; or for post-graduate course in applied sciences, or pure sciences, including mathematics and statistics. The vocational studies pursued after passing senior secondary is also included.