Education Loans Makes Studies Less Taxing, How?

With the raising cost of education at all levels, most parents start saving right from the beginning of the year for the annual payouts and monthly fees. While it is important to plan early, it is equally pertinent to know the tax deductions that parents can get on payment of monthly fees and the tax benefits on educational loan. Under section 80C of the Income Tax Act, 1961, a parent can claim a deduction on payment made for tuition fee to any university, college, school or any other educational institution in India up to Rs. 1 Lakh. The section also covers payments for insurance premium, Public Provident Fund, Employee's Provident Fund, and more.

But there is a caveat as far as claiming IT deductions for tuition fee is concerned. A parent can claim the deduction for two dependent children and for tuition fees only - fees and payments made for donation or development fee to an educational institution do not qualify. The deduction of tuition fees is made available on the actual amount paid to a playschool or a creche is eligible for tax deduction. However, fees paid for private coaching or for studying abroad is not eligible for the tax deduction under Section 80C.

Late payment charges for tuition fees and other sundry charges like uniform, books, transport, hostel charges are not eligible for any deduction. The IT Act makes it clear that, there will be no deduction if the student is pursuing a part-time course, and even for distance education. This deduction also doesn't apply if the person himself/herself or the spouse is pursuing a course, either full-time or part-time. The deduction will be given on the actual tuition fees paid by the parents for the financial year from the month of April to March.

Apart from the tax deduction on the tuition fees, one can claim tax benefit for servicing an education loan under Section 80E of the IT Act. However, the deduction is given only to an individual and not to a Hindu Undivided Family and the deduction on the interest paid will also apply for loans taken for education abroad.