What are the tax benefits of education loans?

The ever-increasing cost of educationis worrying parents who want their children to pursue higher education. Financing the high-pricededucation is a matter of concern for all such parents.

However, the last decade has seen Indian banking industry coming to the rescue of such parents by way of granting education loans. Like the banking sector, the income tax laws have also kept pace with the need of supporting these students and parents. In this article, I shall discuss the various aspects of tax benefits surrounding education loans.

Nature of deductionThe income tax laws allow you to claim interest paid by you in respect of an education loan against your taxable income without any upper limit. However, the deduction is available only in respect of interest and there is no provision in the present law for allowing deduction on the repayment of the principal amount. Moreover, there is no restriction as to when you can start claiming this deduction. You can start repayment of these loans during the period your child is studying or after completion of his studies.
It is important to know that there is no bar on claiming tax benefits in respect of tuition fee paid out of the education loans taken by you and interest paid on such loan. You can claim both the deductions i.e. deduction in respect of tuition fee and interest on loan taken for paying such fees simultaneously.