Taking a loan for higher studies is common among millennials of our country. An MBA degree from any institute in India can cost you Rs 15 lakh or more. Funding your own education will be a wise move, which you can repay with your money once you are employed, and it carries a tax benefit.
Even the parents, who have paid for your education, are eligible to claim the tuition fees in their income tax returns. Let’s understand various tax benefits related to education in detail.
Starting from Section 80E of the Income Tax Act, which provides tax benefits for the interest paid on the loan taken for higher education. You can claim the entire amount of interest paid on the loan in a particular financial year under Section 80E. However, you cannot claim the amount of principal repaid.
There is no maximum monetary limit set for deduction under Section 80E. You can claim such interest paid on higher education loan for a maximum of eight years, consecutively.
Any course or degree pursued after passing the higher secondary examination or its equivalent exam will be considered as higher education for the purposes of Section 80E. It includes both vocational as well as regular courses. The interest on the loan taken for higher education in India or outside India will be eligible for the deduction under this section.
Also Read: Government unlikely to replace the Income Tax Act with direct tax code
The loan must be taken from any bank or financial institution. Therefore, the loan taken from family or friends will not qualify for the tax deduction. In case you are planning to take a loan from your relatives or friends, you won’t be able to claim any interest paid on such loan under Section 80E.
Besides all the aforementioned conditions, this tax benefit will be allowed only to the individuals. One can take the loan for self, spouse, children or for a student to whom the individual is a legal guardian.
Another tax benefit available on the cost of education is Section 80C of the Income Tax Act. This section provides a benefit of Rs 1.5 lakh. Section 80C includes a bunch of eligible avenues such as PPF, ELSS, NSC, 5-year fixed deposits, principal repayment of housing loan, children tuition fees and so on. The tuition fees paid to any university, school, college or any educational institution by the parent is eligible for the deduction under this section.
If your parents are paying for your higher education, they can claim the tuition fee amount paid in the financial year under Section 80C. However, one cannot claim the benefit in excess of Rs 1.5 lakh in a year. The deduction will be allowed to the parent who has made the actual payment of the tuition fees.
For any clarifications/feedback on the topic, please contact the writer at komal.chawla@cleartax.in
I am an aspiring Chartered Accountant. I spend most of my free time dredging through the various Indian finance subreddits. I am a semi-professional bowler with a high strike rate every time there is a new tax reform!
