In the modern economy, market expenditures are high, and for that, the cost of education is increasing, which sometimes puts pressure on the wallets of the middle class. With the right financial integration, a person can now use the banking sector to find new loans.
A DSA partner app or a loan broker can help a person get an educational loan, and that is one of the most fundamental ways to fund the higher studies of children and let them achieve their dreams.
The interesting and good part of an educational loan is that it allows the borrower to take the tax benefits under Section 80E. This allows a person to deduct the loan amount and file taxes, reducing the individual’s net tax amount.
In this blog, we will deal with the types of tax benefits and how educational loans for the person can help the middle class to reduce the tax burden.
Defining the 80E Education Loan Deduction
Section of 80E defines criteria where a person who has taken some educational loan either for self, spouse, or children can claim the deduction as it allows the individual to deduct the interest payment a person made to the recognized financial institutions, and that will define whether or not a person is applicable for the educational loan deductions.
Here, the entire loan amount is not deductible, and the interest paid for the loan each year is deductible, which helps to reduce the net income. For that, taxable income becomes less, and the effect of that falls on the net tax a person needs to pay to the government.
An individual who has taken up an educational loan and has a relaxation of 1 year before the starting of the EMI payment then, in that case, one needs to ask whether they can get the deduction for that grace year or not. In general terms, it’s not the case; the deductions start to happen when a person starts paying the interest fee and that translates into tax deductions.
Eligibility Criteria For Getting the Tax Deductions
When it comes to the eligibility criteria, it must noted that all people can’t get these deductions. For example, members of the Hindu undivided family (HUF) and companies cannot go for these deductions as they are not categorized under this section.
The next catch is the loan must be availed from the recognized financial lender or from the charitable fund, which is now a part of the registered lists of lenders under the accounts of the government.
Here, a person who understands the DSA’s full form and its meaning can consult tat and get an educational loan not only from the banks that offer the best rates but also from those that are recognized, and that will help to reduce the interest deduction from taxes.
How the Deduction amount of 80E is Decided
Under the section of 80E there is no place for the maximum or minimum deduction amount, and a person can get the interest amount reduced from their taxes. However, the only concern is that a person can do the interest deduction only for 8 years, and that allows a person to take deductions for a limited period with the same cause.
One mistake that which majority of the sole tax filers make is that they put the entire loan amount under the tax deduction section through loans. These need to be amended, as one can only deduce the interest payment, and for that, only the section 80E is used.
Document Proof Required to File the Deduction Under 80E
Now, to get the tax deduction, certain aspects need to be shown as the document proof. Only in the first year there are a few documents which need to be attached, such as the financial institution and the statement of the loans. Here, a person needs to finalize the amount that one has taken as a principal and the yearly payments they need to make, which can be considered as interest payments.
Apart from that, one doesn’t need any other documents to get the deduction and only needs to stay careful about the final amount they are putting in for deductions.
These are some of the core aspects of deducting the interest payment of educational loans and through the section of 80E.