Tax deduction benefit on education loan extended for legal guardians

On Monday Finance Minister Pranab Mukherjee announced the tax deduction benefit on interest paid on education loan for legal guardian of the student under Section 80E of the Income Tax Act.

Previously under Section 80E of the Income Tax Act, the individual who has taken the education loan was eligible for the benefit at the time of loan repayment.

According to tax experts the new ruling is a logical step. Vikas Saval, executive director, KPMG, pointed out in India children have a strong family support; in most cases parents or legal guardians support their children’s education and repay the education loans. Thus it is logical to extend the tax deduction benefit to the parents in case they are repaying the education loan of children.

Jayesh Shangvi, tax partner, Ernst & Young, said, “In many cases, if an individual taking education loan doesn’t get a job, his parents or legal guardian, being the guarantor for the loan, had to repay the loan. So, it’s a welcome move from the government.”

Shailendra Kumar, editor, of Taxindia.com, said government has taken a positive step and several lakh people will be benefited, who will be able to avail tax deduction on repayment of loans taken for their children’s education. He further added, “The government’s move to extend the benefit to legal guardian and not just parents makes Section 80E all the more beneficial”.

In the Union Budget this year, the finance minister had earlier announced the tax benefits under Section 80E to all vocational courses after SSC or equivalent.

Previously the benefits were extended to full-time graduates or post-graduate courses in medicine, engineering, or management, or post-graduate courses in applied sciences or pure sciences, including mathematics and statistics.

In the current financial year for the first two months, banks have given Rs 7,338 crore as education loan, a growth of 34 per cent over the same period last year. PSU banks are the major players in the education loan segment have disbursed Rs 27,645 crore during 2008-09.