Learn ESL
Image default
How to

How to Get Tax Benefits On a Personal Loan for Education

Taking a Personal Loan for education is one of the best ways to finance higher studies in India or abroad. It is an excellent funding option that covers almost every education-related expense, including admission and tuition fees, transportation and visa costs, accommodation and meals, study material and equipment, etc. 

The advantages of using a Personal Loan are aplenty. Apart from getting the funds required to pursue higher education, borrowers also get tax benefits by using a Personal Loan for studies. This way, you can save a considerable amount on tax. Let’s learn more about the tax benefits of Personal Loans for education and how to avail of them.

How Does a Personal Loan for Education Work?

Many people who want to pursue higher education in India or abroad borrow Personal Loans. Borrowers use it to take any course they wish in any institute worldwide. Once they receive the loan amount, the repayment period starts and they need to pay it back in EMIs across a convenient tenure.

Loan providers charge an interest rate on the financed amount. So the EMIs contain small portions of both the principal and interest amounts.

According to the Income Tax guidelines, the interest amount is tax deductible which helps save money. However, here are a few things to note:

  • The provision for a tax deduction on a Personal Loan for education is based on Section 80E of the IT Act 1961.
  • The income tax benefits are applicable only on the sanctioned loan’s interest amount. There is no tax benefit on the principal amount.
  • ●        The entire interest amount is deductible while evaluating the taxable income. There are no restrictions for deduction grants pertaining to loan interest. Further, there are no restrictions on the interest rate permissible as a deduction.
  • A borrower can claim tax benefits if they have taken a loan to support the higher education of themselves, their spouse, kids, or a student under their guardianship. However, if a person uses a loan to fund the education of a sibling or another relative, they do not qualify for a tax benefit under Section 80E.
  • Only the borrower can claim a deduction if they have the loan in their name.
  • Borrowers using the loan to study abroad can also claim tax deductions under this section.

Tax Benefits Under Section 80E

When calculating an individual’s total income, any amount they pay towards the loan interest from their taxable income during the previous year is tax deductible under the Section 80E provisions. However, they must have used the loan to pay higher education costs at any private or public educational institution in India or abroad.

Sub-Section (1) of Section 80E of the IT Act 1961 specifies this deduction from the borrower’s chargeable income. However, the IT department assesses the individual’s total income, along with seven assessment years after the initial assessment, until the borrower pays off the entire loan interest in full.

Who Can Claim the Tax Benefits?

When an individual borrows a Personal Loan for higher education in India or abroad, they become eligible for a tax deduction on the interest paid under Section 80E of the IT Act 1961. These income tax benefits are available for anyone who fulfills the following conditions:

  • Any person taking a Personal Loan and using it for funding education and its related expenses
  • The borrower’s spouse repaying the loan
  • The borrower’s legal guardian repaying the loan
  • The student’s parents who borrowed the loan or co-signed the loan application

How to Avail Tax Benefits on a Personal Loan for Education?

Although the Indian Income Tax Act does not mention any tax deductions on Personal Loans, it does not mean one cannot avail of these benefits if they use a Personal Loan for education. The IT department still provides tax benefits to those who use Personal Loans for specific purposes such as home renovation, business, or education.

While submitting their tax deduction documents and forms, taxpayers simply need to mention the interest amount they paid for the loan during the previous year. Since a borrower pays the Personal Loan in installments, they must sum up the interest amount in the entire year’s installments and report them in the document. They must claim this tax benefit while filing the income tax and not other payable taxes.

The IT department now enables taxpayers to file their taxes online through their official website. While filing the returns, the borrower should remember to mention the interest amount they paid towards the loan they used for education. They will also need to provide some supporting documents if required.

The borrower must be cautious about the NBFC’s credibility while applying for a Personal Loan. If the lending institution is not legitimate, the tax authorities view the loan as the borrower’s income and apply tax on them. For that reason alone, borrow from a reputable lending institution like Clix Capital only after meeting their eligibility criteria and minimum credit score requirements.

Stepwise Procedure to Claim a Tax Benefit

  • Visit the IT e-filing portal, log in, and click the ‘IT Return’ link
  • The IT Return page will auto-populate the PAN number, where the user must select an assessment year, filing type, and submission mode and click ‘Continue.’
  • Enter relevant details about the Personal Loan and the interest paid during the previous year.
  • Verify all the entered data and proceed with e-Verify to submit the ITR.

Taking a Personal Loan for education provides the required funds for higher education. Moreover, its timely repayment helps build a credit score and improve eligibility for future loans. Remember, borrowing a Personal Loan for any other purpose than education does not necessarily provide tax exemptions. So be clear about the reason for borrowing the loan and mention it while filing ITR to claim these tax benefits.

Related posts

How You Can Learn English With NFT


How to Write an Autobiography – The Best Step by Step Guide

Abida Batool

How to See What Devices Are Connected to Your Viber Account


Leave a Comment