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If you take a higher education loan either for yourself, your spouse or your children, the interest paid on such loan qualifies for a tax benefit.
As per section 80E of the Income Tax Act, any interest paid on higher education loan can be deducted from your taxable income. There is no upper limit for claiming deduction of interest paid on educational loan.
Example 1: You've taken an educational loan for your child, and you are paying an interest of ₹10,000 per month on the educational loan. As per section 80E, you can deduct ₹120,000 from your taxable income.
To qualify for a tax benefit, the educational loan should be in your name. Also, you need to take the educational loan from a bank or an approved charitable or financial institution. If you've taken a loan from family, friends, or your employer, you won't get a tax benefit.
The educational loan can be for any full-time graduate or post-graduate courses in any field, including vocational studies. Moreover, the educational institute can be based either in India or abroad.
The tax benefit is available only on the interest part, and not of the principal part, of a higher education loan. You can start claiming a deduction once you start making repayments. You can claim this deduction till a maximum of 8 years.
Example 2: If you are repaying the education loan for 6 years, every year you can deduct the interest from your taxable income. However, if you are repaying the educational loan for 9 years, you can claim a tax benefit only till 8 years. Any interest paid from the 9th year onwards cannot be deducted from your taxable income.
Use our tax calculator to see how interest on higher education loan can impact your taxes.