Thursday, December 22, 2011

SBI Student loan -Tax benefit

I am welcoming all the Students and their parent and guardians who have taken Student or Education loan or proposing to avail the same from any bank in India for their child's higher studies in India or abroad to my this post and happy to inform all of you that you can get Income Tax rebate. It will be great help to those who are not aware of this benefit. Many of us may not be aware of the fact that the Tax exemption on the interest amount paid for the education loan can be availed. This can reduce the overall burden of cost on education or student loan.

You can refer to the section 80 E of Income Tax Act where detailed about this exemption has been explained. Once you have taken the education loan, you can claim deduction under section 80E of Income tax Act for the sum of interest paid on the loan amount. The amount of interest paid is eligible for deduction and you can deduct the whole interest from your taxable income.

Previously there was a restriction on the tax benefit to be deducted from the income. Only Rs.40,000.00 per year or the total amount including the principal and the interest paid during the year, which is less, was allowed as a tax benefit.

But the tax deduction is only available, if the purpose of loan is to pursue higher education to complete full time studies in graduate or post graduate course.This tax benefit on education or student loan are only available when you start the repayment and they are available only upto eight years. For example, if your loan repayment exceeds eight years, you cannot claim for deduction beyond eight years.

Hence it is wiser that the education or student loan is repaid within eight years. Unless the loan amount is very high and it is very hard to afford a high amount of equated monthly installment (EMI), one should not opt for education or student loan with longer period.

It may be noted that, this benefit is only available if the loan is taken from a financial institution or from a bank. Loan taken from friends or relatives will not be considered for tax benefits.

As per the provision in section 80E of Income Tax Act, any amount paid by you in the previous year, out of your taxable income, by way of repayment of loan, taken by you from any financial institution or any approved charitable institution for the pupose of pursuing higher education or interest on such loan, provided that the amount which may be so deducted shall not exceed Rs. 25,000.00.

The deduction mentioned in sub-section(1) shall be allowed to calculate the total income in respect of the initial assessment year and seven assessment years immediately after the initial assessment year or until loan referred to in sub-section (1) together with interest there on is paid by the assessee in full, whichever is earlier.

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