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Taxes on loans
One can claim a deduction of up to Rs. 40,000 on the amount paid out of the taxable income in the previous year. This is a comprehensive limit, and includes principal and interest, if any. One can claim the deduction if you've taken a loan from a financial institution or an approved charitable institution to pursue full-time courses for graduate or post-graduate level studies in engineering (including architecture), medicine and management or a post-graduate course in applied sciences or pure sciences, including mathematics and statistics. The deduction is allowed for the first assessment year relevant to the previous year when the assessee starts repaying the loan and for seven assessment years immediately following thereafter. In other words, the deduction is available for a maximum period of eight years from the first year of repayment. The deduction shall be allowed for the period of loan and interest repayment, if it is repaid in full before the end of the above period.

Note: This deduction cannot be claimed by parents who have taken loans for the higher education of their children.

Documentation required

Typically the following are the basic minimum documentation to be provided to the bank while availing of loans from them:

• Mark sheet of last qualifying examination for school and graduate studies in India.

• Proof of admission to the course.

• Schedule of expenses for the course.

• Statement of Bank account for the last six months of borrower.

• Income tax assessment order not more than 2 years old.

• Brief statement of assets and liabilities of borrower.

• Identity and give proof of residence.

• Copies of letter confirming scholarship, etc.

• Copies of foreign exchange permit, if applicable.

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