Deduction in respect of repayment of loan taken for higher education

Section 80E provides you tax benefits on education loans taken to support higher studies and these benefits help you to reduce the overall cost of your education loan. Conditions to be satisfied for availing benefit under section 80E – 1. The assessee is an individual. 2. He had taken a loan from any financial institution (i.e., a banking company or notified financial institution) or an approved charitable institution. 3. The loan was taken for the purpose of pursuing higher education [i.e., full-time studies for any graduate or post-graduate course in engineering (including technology /architecture), medicine, management or for postgraduate course in applied sciences or pure sciences including mathematics and statistics.] 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. Education Loans taken for full time courses only are eligible. Any graduate course (as mentioned above), or, post-graduate courses in engineering, medicine, management, applied sciences, mathematics or statistics are considered for a deduction. No deduction is available for part-time courses. 4. The loan was taken by the taxpayer for the purpose of pursuing his own higher education or of his relatives, i.e., spouse / any child. From assessment year 2010-11, deduction could be claimed for the student for whom the individual or assessee is the legal guardian. 5. Amount is paid by the individual during the previous year by way of interest on such loan. 6. Such amount is paid out of his income chargeable to tax. Amount of Deduction- Entire payment of interest is deductible. The deduction is available for a maximum of 8 years or till the interest is paid, whichever is earlier. This deduction is allowed in computing the taxable income of the initial assessment year (i.e., the assessment year relevant to the previous year in which the assessee starts paying the interest on the loan) and seven immediately succeeding assessment years (or until the above interest is paid in full, whichever is earlier). Other points • Loan should be in the name of individual claiming deduction. No deduction can be claimed for loans in the name of parents, spouse or sibling; even if the loan was taken for your studies. • The course need not be pursued in India. Loans for overseas courses are also permissible for a deduction. • Deduction would be applicable only when the individual starts repaying the loan. • The loan includes not only tuition or college fees but also other incidental expenses for pursuing such studies like hostel charges, transport charges etc.

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