Source: ET-Wealth-3Jan2011: 8 Tax Saving Secrets
Use education loan to lower tax
The rising cost of higher education is forcing people to borrow money to pay the fee of their children’s professional courses. The taxman is sympathetic and offers a deduction that can lower the cost of the loan. The interest paid on an education loan is fully deductible from taxable income under Section 80E. Till a few years back, this deduction was available only to the borrower. Now, even a parent or a spouse can avail of it. What’s more, this now includes loans taken for vocational courses. “If a parent or legal guardian takes the loan, he can claim deduction for the interest paid for up to eight successive years, starting from the year in which the interest is first paid,” says Shanbhag.
However, loans taken for siblings and other relatives do not qualify. Also, the lender must be a recognised financial institution; loans from employers or individuals do not count.
How much tax can you save: If you take a Rs 10 lakh education loan at 10% interest for 8 years, you can save Rs 1.41 lakh in tax in the highest tax bracket. This will bring down the effective cost of the loan to 7% per annum.
Proof required: Loan statement from lender.
Highlights - Ajay
* Even a parent or a spouse can avail of it
* Loan can be taken for vocational courses as well
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