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Education Loan - Tax Relief U/s 80E

 

Apart from Tuition Fees, the Loan could cover expenses like Hostel Charges, Library / Laboratory Fees, Travel Expenses and Passage money for studies abroad. The borrower can claim Tax Exemption on Interest Paid u/s 80E. There is no cap on the amount of interest on which one can claim Tax Exemption ; your entire interest outgo on an education Loan is eligible for Deduction. The Tax Exemption, though, is not available for repayment of principal.

The Loan should be taken from Bank, Financial Institution or a Government Approved Charitable Institution for higher Studies. Courses eligible for the deduction include Graduation, Post-graduation, Professional Courses and other Courses approved by the UGC, the government of the AICTE.

If you have borrowed Rs. 2,00,000 at the rate of 12% per annum for seven years, the total interest paid would be Rs. 1,06,776, and the entire amount can be deducted from the total income.

Interest deduction available on Rs. 2 lakh loan borrowed @ 12% as follows :

Year

Actual Int.
Repaid ( in Rs.)

1

24,000

2

21,624

3

18,960

4

15,972

5

12,636

6

8,892

7

4,692

Total

1,06,776

Entire amount is available as deduction u/s 80 E.

The repayment period for the student borrowed starts one year after the completion starts of the course or six months after he/she secures employment, whichever is earlier. The tax exemption is allowed for the year you start repaying the loan and seven subsequent assessment years. If the loan has been taken by the parent or spouse, they can start repayment immediately after the disbursal of the loan and claim exemptions accordingly.

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