If you have missed out claiming education loan interest in your income tax return you don’t have to feel worried. You can revise your income tax return filing during the assessment year.
Under section 80E of Income tax act, interest paid on education loan qualifies for deduction for a maximum period of 8 consecutive years, starting from the year in which the borrower start repaying, or till the time interest is paid fully, whichever is earlier. For instance, if the entire loan payment is done in 6 years only, then tax deduction will be allowed only for 6 years, instead of 8 years.
Gaurav Aggarwal - Associate Director - Unsecured Loans, Paisabazaar.com said in case you missed claiming a deduction for interest repayment of education loan in a particular year, you can still claim it by filing a revised income tax return for that financial year. For those filing returns for the assessment year 2017-18, revised ITR can be filed within a period of one year from the end of that relevant assessment year or before the completion of the assessment by income tax department, whichever is earlier. “The assessment year 2018-19 onwards, revised ITR can be filed at any time during the assessment year (before the end of the Assessment Year) or before the assessment made whichever is earlier. There is no limit on the maximum amount that can be claimed as a deduction,” he clarified.
There are five important things to keep in mind about education loans.
=> Education loans provide you with a moratorium period so that you can wait until your education is complete before you begin to repay your loan. Adhil Shetty, CEO, Bankbazaar.com said that this is not an interest-free period. The bank charges you a simple interest during this period. “The most prudent option would be to repay this interest. Not only will this help you claim tax benefits, it will keep your principal low and even earn you a cut on the interest rates,” he added.
=> Interest repaid can only be claimed by the individual who has taken the loan, if the income of that individual is chargeable to income tax.
=> You can claim tax benefits only on the interest paid on the education loan and not on the principal.
=> The person who avails the loan can claim deductions. Any individual can take an education loan to finance their own higher education or that of their spouse or children. “ The most important thing you should know is that if you take an education loan for your daughter and repay it, you can claim the tax deduction. However, if your daughter repays the loan from her source of income after she starts earning herself, neither you nor she can claim deductions. This is because the loan is in your name but the repayment is not made out of your taxable income,” said Shetty.
Aggarwal also said that if the education loan was taken by the father, then he can claim a deduction for the interest component repaid, provided his income is taxable. However, in case the EMI is shared by the son and father, the father can claim a deduction only up to the share of EMI paid by him. The interest share repaid by son won’t be eligible to be claimed, neither by him nor his father,” he said.
=> Not all education loans are eligible for tax exemptions. Section 80E specifies that only loans from specified financial institutions, including banks and “any other financial institution which the Central Government may, by notification in the Official Gazette, specify in this behalf” are eligible for exemptions. So, if you plan to take a loan from an NBFC, you need to ensure that your loan provider is included in this list.