Quote:
Originally Posted by BuffetFan  Is there a tax benefit on interest paid on student loans in India? |
"Chapter VIA of the Indian Income Tax Act:
DEDUCTIONS TO BE MADE IN COMPUTING TOTAL INCOME >>> Deductions in respect of certain payments >>> Section 80E, DEDUCTION IN RESPECT OF REPAYMENT OF LOAN TAKEN FOR HIGHER EDUCATION.
80E. (1) In computing the total income of an assessee, being an individual, there shall be deducted, in accordance with and subject to the provisions of this section, any amount paid by him in the previous year, out of his income chargeable to tax, by way of interest on loan taken by him from any financial institution or any approved charitable institution for the purpose of pursuing his higher education or for the purpose of higher education of his relative.
Main points to avail the deduction are :
1 Eduction loan should be taken by Assessee.
2 The repayment should be out of income chargeable to income tax means if repayment is made from income exempted from income tax than deduction will not available.
3 The amount eligible for deduction is repayment of eduction loan interest.
4 There is no limit for amount of repayment of interest
5 This deduction is available in respect of the initial assessment year and seven assessment years immediately succeeding the initial assessment year or until the interest is paid by the assessee in full, whichever is earlier.
6 Initial Assessment year means previous year in which assessee starts paying the interest amount.
7 The loan should be taken for the purpose of higher eduction,and higher eduction means full-time studies for any graduate or post-graduate course in engineering, medicine, management or for post-graduate course in applied sciences or pure sciences including mathematics and statistics;
8 The loan should be taken from any financial institution or any approved charitable institution.
9 The loan should be taken for higher study of himself or studies of relative
Earlier to PY 2006-07 the deduction was available only for loans taken and repaid by the assessee himself, but after finance act 2007 ,"or for the purpose of higher education of his relative" has been added - Relative under this section means the in relation to an individual, means the spouse and children of that individual.
There is no deduction available for repayment of principal ,this deduction is available to only for interest.
This deduction is available for individual only and not for other type of assessee . The loan should be for pursuing higher studies means its includes loan taken not only for tuition or college fees only but other incidental expenses for pursuing such studies like hostel charges,transport charges etc.,
There is no condition that the course should be in India ."
- as per point [5] above, If you start repaying your interest during the course period itself (when you may not have any taxable income), you can claim deduction for upto 7 years
after your course is complete. [Course year will be PY + 7 subsequent years]
If you decide not to 'service' the interest component during the course period and avail the repayment holiday till you get back into a job, then you can claim deduction for upto 8 years after course completion... [PY + 7 years]
The decision should be based on the quantum of your loan, since if the compounding of the interest during the moratorium adds up to less than the 1st year tax savings after your course completion, it makes sense to let the interest add up and get a deduction from your income in the next year.
If your loan amount is less, then it makes sense to pay the interest during the course itself.. since your tax savings will be less than the compounding effect.
Once the final interest rates are published on the IIMA website and you figure out the loan amount you want to go in for, you can do the calculations to arrive at a decision.
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