How to make the most of tax deductions on education loans?
by Sunny Dhawan Banking ProfessionalWhat are tax deductions?
●
A Tax
deduction is a deduction that lowers a person's gross taxable income and
thereby reduces the net tax liability.
●
A tax
deduction is a form of expenditure that a person incurs during the year which
can be claimed against or deducted from your taxable income.
●
Now,
not all expenses are eligible for tax deductions. So before claiming a tax
deduction one must make sure that it's an eligible item of an expense under the
Income Tax Act.
Tax benefits on study
loan for abroad
To
begin with, while availing tax
deductions on student loans or education loans one must keep in mind the following:
●
There
is no prescribed monetary threshold of deduction. In simpler terms, there is no
specific amount or specific limit of deduction.
●
A person can claim any amount of deduction against education loans. But there are
a few restrictions to that statement.
●
The
amount of deduction can be unlimited but, deductions are allowed only of the interest component of the loan taken and not of the principal component of the
loan.
●
Tax
deduction against an education loan is taken under section 80E of the Income
Tax Act. Under this section, tax deductions can be claimed for a maximum of 8
years beginning from the year in which interest becomes payable until eight
years or up to the year of repayment of the principal amount, whichever is
earlier.
● Section 80E also has a few eligibility conditions:
- The person availing of the education loan can take the benefit of deduction only if that is the same person is repaying the loan.
- A loan has to be taken from any banking or financial institution. The loan can't be taken from a relative or company you work in etc.
- An education loan can be taken for higher studies in India or overseas for the higher education of the person himself or his spouse or his children or for the person to whom he is a legal guardian.
Conclusion
●
Tax
deductions are a way of lowering your gross taxable income and your net tax
liability but one must avail deductions within the eligibility criteria.
●
Before
availing of a loan, one must avail it from the eligible sources and must
double-check that the institution from which the loan is taken falls under the
list of eligible institutions.
●
If a loan is taken for anyone except for the person falling on the eligibility list
no tax deduction will be available against that expense then.
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Created on Aug 17th 2021 07:23. Viewed 382 times.