Will There Be Tax Benefit On Education Loans For Studies Abroad?

Parents and students availing educational loans for their higher studies abroad, have something to cheer about. The contention that whether the tax benefit would be available or not in case of education in an institution abroad has now been settled.

The tax benefit on interest paid in an educational loan qualifies for deduction from one’s income. As per the income tax Act, 1961 rules, the loan in such case has to be for a higher education. Nowhere in the rule it’s written that the education has to be in Indian institution. At times, assessing officer declined the benefit under section 80E to the taxpayers for education loans taken for studies abroad. To put the discrepancy to rest, Pune Income-tax Appellate Tribunal has clarified that the education in an international institution will also qualify for tax benefit.

What The Rule Says: As per the act, "higher education means any course of study pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognised by the Central Government or State Government or local authority or by any other authority authorised by the Central Government or State Government or local authority to do so.” Nowhere it suggests that its applicable only in India and neither does the rule specifies exclusions.

The Order: The ITAT it is order, which has been recently released, observed: "Provisions of Section 80E do not contain any stipulation that the higher education should be pursued only in India. If the intent of the legislation was that education should be pursued in India, in order to avail of the interest deduction, it would have stated so. Further, the taxpayer's son had completed SSE or its equivalent, as is required by this section, before pursuing studies overseas."

Conditions: The interest on loans taken for higher education are also eligible for deduction from your total income under Section 80E. There is no monetary ceiling on the interest you can claim as a deduction. However, the loan must have been taken from a financial institution or an approved educational institution. The loan taken can be for educating oneself, children or even spouse. The deduction shall be allowed for the initial assessment year and seven assessment years immediately succeeding the initial assessment year or till the entire interest is claimed, whichever is earlier.

End note: According to Forbes, India in Jan 2013 there were more than 4.64 lakh students going abroad to study every year. As per RBI figures, the education loan outstanding (as on Oct, 2015) is nearly Rs 674 billion of which a sizeable amount could be for education abroad. Denying parents the tax benefit on the basis of geographical boundaries was probably not the spirit of the tax rule. The CBDT can come with a clarification soon and even budget 2016 may put the disagreement to rest.