At the outset it should be stated that repayment of Education loan does not qualify for deduction now as there has been an amendment to section 80E with effect from financial year 01.04.2005. Till 31.03.2005 repayment of loan was also eligible up to Rs.40,000 under section 80 E of the Income Tax Act.
Now only interest repayment is eligible without any limit subject to the following conditions.
* The loan is taken by the individual in his / or her name and the same is used either for his / or her education or his wife or / her husband of the individual as the case may be, individual’s children & also for dependent of the individual for whom the individual is the guardian.
* The interest should be paid out of income chargeable to tax.
In other words if interest is paid out of borrowed funds or / exempted income such as encashment of LIC policy etc. the same is not eligible.
* The education loan should be taken from a financial institution which includes a bank & not from friends or / relatives.
* The expenses should have been incurred on higher education which includes pursuing education after passing out senior secondary examination or / equivalent examination conducted by a university recognized by the Central or / State Government.
The deduction can be claimed from the year in which the interest is paid first plus 7 (seven) more years. However, if the education loan is closed within the aforesaid period of 8 years then no deduction can be claimed after repayment of entire loan. If the loan is not closed within 8 years then no deduction towards interest can be claimed from the 9 year onwards.
* The Education loan taken can be used for payment of not only tuition or college fees but also incidental expenses such as hostel charges, transport charges etc.
* There is no condition that the course for which the loan is taken should be conducted only in India. In other words loan can be taken for pursuing education abroad.
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