February 24, 2012

Tax breaks for education loan & tuition fee!

Beyond the obvious benefits of good education, it also helps that the funds one deploys for education could actually help avail tax breaks. This not a much used avenue for saving taxes, primarily because of lack of awareness. Here is a brief on how one could use the education loan and tuition fee to reduce tax liability…

Education Loan – qualifies under section 80E
Apart from the home loan, this is another loan liability that provides tax breaks. However, do note that unlike the home loan where the entire EMI including both interest and principal would qualify for tax benefit, incase of the education loan, only the interest part would qualify as tax benefit. There is no maximum limit on the interest that one can claim.

The interest rate on educational loans would typically be slightly higher than that of the home loan and marginally lower than that of personal loan. The onus of repayment would lie on the student, and normally repayment will have to start within 6 months of placement or 1 year after completion of the course, whichever is earlier. One can claim the tax deduction for a period of 8 years’ from the year from which the loan repayment is initiated.

The scope of the deduction includes loan taken for the individual, spouse or children (assessee being legal guardian). From assessment year 2010-11, the Government has extended the benefit in Section 80E to all streams of studies including regular courses as well as vocational courses, pursued after passing the Senior Secondary Examination from a recognized Board. The course has to be a full

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