Tax Benefit on Education Loan

In order to encourage people to take education loans, I.T. Act provides certain tax benefits.

Till recently, you could get this tax benefit only for pursuing higher education in specified fields of study. But now the scope has been extended to cover all fields of study, including vocational studies pursued after completion of schooling. However, part-time or correspondence courses will not be eligible for tax benefit.

You can take the loan either for your own education or your spouse/children. Loan take for your siblings’ education or any other person will not be eligible for tax benefit. But there is no restriction on the number of education loans on which you can claim tax deduction.

This tax benefit is similar to your home loan tax benefit, but with a few key differences:

a) There is no limit on the interest that you can claim as deduction, unlike a home loan where the limit is Rs.1.5 lakhs p.a.
 
b) In home loans you can claim deduction for both the interest (u/s 24) and the principal (u/s 80C). But herein you get the benefit of interest payment only (u/s 80E). Principal repayment does not get any tax benefit.
 
c) The tax benefit is available only for 8 years. If your loan continues beyond 8 years, you will not be eligible for any tax benefit for this extra period. There is no such time limit on home loans.

Note: You will be eligible for the tax benefit only if you avail the loan from a bank/financial institution or an approved charitable institution.