With the excellent quality of education, ample opportunities to choose from and a high standard of living, more and more students are migrating overseas for pursuing their higher education. Be it for bachelors, masters or diplomas, international universities offer multiple options in a variety of subjects.
To fund an international degree, the study overseas aspirants opt for student loans for studying abroad. An education loan is a great option as it covers an entire cost of foreign education. Another benefit is that borrowers can claim a deduction under section 80E of the Income Tax Act 1961 that caters specifically to educational loans.
The term ‘tax benefits’ refers to a law that gives an opportunity to reduce the tax bill on fulfilling certain eligibility criteria. A tax benefit comes in different forms like deduction or credit.
As per the Section 80E of the Income Tax Act, 1961, the interest paid on an education loan in India for study abroad is considered as a deduction from total income. Both the applicant and the co-applicant are eligible to claim the benefit. This act allows the borrower to reduce the overall cost of foreign education loan.
• Income Tax Deductions can be claimed only on the interest paid.
• The benefit can be claimed by the borrower, co-borrower or whoever repays the loan.
• One cannot claim deductions beyond 8 years.
• One can avail tax benefits only if the loan is availed from an approved financial institution.
All major government banks and private banks like Bank of Baroda, State Bank of India, Central Bank of India, Axis Bank, ICICI Bank, HDFC Bank offer tax benefits on an overseas education loan.
When it comes to the NBFCs, only those NBFCs that are notified by Central Government via official Gazette as a ‘Financial Institution’ are eligible for tax benefits.
The maximum period you can claim a deduction is up to 8 years from the year in which the borrower is starting to repay the interest on an overseas education loan or till the time interest is paid fully, whichever is less. For an instance, if the borrower finishes the complete education loan repayment within 5 years, then the tax deduction will be allowed only for the time span of 5 years.
The interest amount is deducted in the form of EMI every month and there is no such limit on the maximum amount that is allowed as deduction. To claim the tax benefits, the co-applicant will be required to obtain an interest certificate from the financial institution.
The borrower can claim the tax benefits from the year of starting to pay interest on the education loan. If one has started paying interest within the same year of borrowing, then one can claim a deduction for the payment of interest on the loan.
In short, Education Loan Tax Benefits allow students to save a good amount of money on their overseas education loans. Get in touch with our team of experts at ELAN Loans and begin with your education loan process.
Login