Education plays a crucial role in the economic development of all societies. While there is a universal acknowledgement to the need for public funding of primary and secondary education, public funding of higher education in a developing country like India is not feasible.
Thus, recognising the importance of higher education and the role of institutional funding to deal with rising cost of higher education, the policymakers came out with tax deduction on education loans under Section 80E.
The objective was to relieve interest burden from education loan borrowers through tax incentives. However, to claim the tax deduction, the borrowers have to meet certain conditions.
Here is a list of ‘must-knows’ regarding tax deduction on education loans:
Principal component does not qualify for tax deduction:
Borrowers often misunderstand tax exemption provisions available on education loan. This stems from tax exemptions available on home loan where both principal and interest components of EMIs qualify for tax deductions under Section 80C and 24b, respectively.