‘UPON THE Education of the people of the country, the fate of the country depends.’
Our country seems to have taken the wise words of UK’s inter-war year’s Prime Minister Benjamin Disraeli in true spirits. Given the high level of illiteracy in the country, and the need to ensure that Indians are as competitive as their global peers, the government has been taking steps to boost education sector.
While the government has been raising the budgetary allocation for education every year and has also imposed 3% cess to promote primary and secondary education in the country, it also provides tax breaks for those who are pursuing higher education.
Section 80E of the Income Tax Act is in fact a boon for students who wish to undertake graduation and post graduation courses in various educational fields. Rising cost of education has forced most students to take loans to pursue their dreams. Section 80E, thus, ensures that any interest paid on these educational loans is exempt from income tax.
Unlike the interest rate on housing loan, there is no limit attached to the quantum of interest paid during the year. Thus, any amount of interest paid on education loan is exempt from tax, provided the loan has been taken from a financial institution or any approved charitable institution.
However, while exemption for repayment of interest on housing loan stretches through the entire period of repayment, in the case of education loans, it is restricted to eight consecutive years. The eight-year count begins from the first year, when the student actually begins to repay the loan.
Earlier, the exemption under Section 80E was restricted only to the students, who had taken loan to pursue higher education. This was a major anomaly in this section, since in most cases, it is not the students but their parents, who take loan for the education of their children. The anomaly was removed by the Finance Act 2007, wherein the exemption under this section was extended even to the relatives. Thus, now if the loan has been taken and is being repaid by the parents or even the spouse of the individual, they will also be entitled to claim exemption under the section.
Also, it is not just the higher education that has attracted tax-incentives in the country. Individuals paying their own tuition fees or parents paying tuition fees for their children in schools, colleges or universities can claim an exemption for the same from their taxable income. However, there is no separate section for this exemption and the same has been clubbed under the Rs 100,000 limit of Section 80C. It is important to note that this exemption is available only for the tuition fees. Any other expenditure in the nature of development fees or donations shall be disallowed. Besides, this exemption has been restricted to payment of tuition fees to Indian educational institutions only.
