Being one of the key concerns of an average Indian, education is a natural beneficiary when it comes to tax breaks. Over the years, apart from constantly increasing budgetary allocations for education, the government has been making provisions to help students and parents avail of tax reliefs on money spend on it. Union Budget 2008-09 has maintained the status quo on deductions allowed on tuition fees and interest paid on education loans.
Several banks offer loans for educational purpose. Apart from tuition fees, the loan could cover expenses like hostel charges, library /laboratory fees, travel expenses and passage money for studies abroad. The borrower can claim tax exemption on interest paid under Section 80 E. However, it comes with certain riders.
The loan should be taken from a bank, financial institution or a government-approved charitable institution for higher studies. Courses eligible for the deduction include graduation , post-graduation , professional courses and other courses approved by the UGC, the government or the AICTE. As far as studying abroad is concerned, loans can be availed for job-oriented graduation courses offered by reputed universities, postgraduation courses like MS, MBA and MCA, and other professional courses from certain institutes like CPA, USA and CIMA, UK.
Effective fiscal 2007-08 , a person taking a loan to fund the education of his/her children or spouse will be eligible for claiming deduction on his/her income for taxing purposes . Also, there is no cap on the amount of interest on which one can claim tax exemption; your entire interest outgo on an education loan is eligible for deduction. The tax exemption, though, is not available for repayment of principal.
If you have borrowed Rs 2,00,000 at the rate of 12% per annum for seven years, the total interest paid would be Rs 1,06,776, and the entire amount can be deducted from the total income (see box). The amount repaid as interest will get the benefit each year.
The repayment period for the student borrower starts one year after the completion of the course or six months after he/she secures employment, whichever is earlier. The tax exemption is allowed for the year you start repaying the loan and seven subsequent assessment years. For example, if you have started working in May 2008, the exemption can be claimed from the year 2008-09 to 2014-15 . The repayment period specified by most banks is 5 to 7 years. If the loan has been taken by the parent or spouse, they can start repayment immediately after the disbursal of the loan and claim exemptions accordingly.
Money spent towards childrens tuition fees at the time of admission and throughout the courses duration can be deducted from your taxable income under Section 80 C. However, other payments made to the school or college, like donations, development fees and other expenses of similar nature are not eligible for tax exemption.
The relief is given to tuition fees paid towards full-time education of any two children of an individual. Also, the relief can be availed of only if the children study in universities, colleges, schools or educational institutions in India.