The income tax return season is underway, and whether you draw a salary or run a business, your ITR has to be filed before 31 July. Most taxpayers now opt for the new tax regime, but if you have taken an education loan, switching to the old regime could hand you a deduction worth thousands of rupees. Before you file, it pays to understand exactly how this benefit works and how much you can claim in a single financial year.
Section 80E of the Income Tax Act is what makes this possible. The relief applies to the interest paid on a higher education loan, and any taxpayer can claim it. The standout feature is that, unlike a home loan, there is no upper ceiling on the interest deduction. Whatever interest you pay over the year, the entire amount falls within the deduction. That is precisely why many consider this loan one of the most tax-friendly options available.
Whose education the relief covers
It is a mistake to assume the deduction applies only to a loan taken for your own studies. Whether it is a regular course or a vocational one, a loan taken for any kind of education qualifies. You can take the loan for yourself, for your spouse and children, and if you are someone's legal guardian, a loan for their higher education also lets you claim the deduction.
Only the interest, never the principal
Under Section 80E, the full amount you pay as interest on a higher education loan becomes tax free. The entire interest paid in a financial year can be claimed as a deduction while filing your ITR. Keep one thing in mind, though, this relief is limited to the interest alone. You get no tax break on the principal portion of the loan.
How long the benefit lasts and the conditions
The deduction on an education loan can be claimed for a maximum of 8 years. The clock starts from the year you begin repaying the loan, and runs for the next eight years. If your loan is cleared before those 8 years are up, the deduction period ends along with it. One point is clear, if a friend or someone outside the family takes the loan, no deduction can be claimed on it. The benefit belongs only to the person actually repaying the loan. On top of that, the course you are pursuing must figure among the higher courses recognised by the government.
How to claim it in your ITR
Start by getting an interest certificate from your bank or institution. It carries a separate breakdown of the principal and the interest you have repaid. Then, in your ITR form, go to the Deductions under Chapter VI-A option, enter the interest amount and claim the deduction. While entering this information in your ITR, you may also need to attach the interest certificate if required.
