If you invest in a scheduled bank’s tax-saving fixed deposit (FD) or an FD that runs for a term of five years or more, you get a tax benefit under section 80C of the Income-tax (I-T) Act. The amount you invest gets a tax deduction from your taxable income.
However, keep in mind that the interest you receive on an FD is taxable.
If you have taken an education loan for higher studies in India or abroad for a full-time course from a financial institution or an approved charitable institution, you are eligible for a tax deduction under section 80E of the I-T Act. You get the benefit of tax deduction on the interest part of the loan payout.
Though you will not get any tax benefit on the principal repayment of the loan, there is no limit to the deduction amount for the interest amount you pay.
The maximum period for which you get deduction is eight years (starting when you begin repaying the loan), or till the entire loan is repaid , whichever is earlier.
Remember, the loan can be taken for yourself, your spouse or your children or if you are a legal guardian of a student for whom you’ve taken the loan. The deduction is available only to individuals.
If you’ve bought a home on a loan, then there’s good news as far as tax benefit goes. Under section 80C of the I-T Act, the principal repayment of up to Rs1 lakh can be used as deduction.
In case you make any part repayment towards the principal part of your home loan, that amount will get similar tax treatment.
Under section 24 of the Act, the interest amount you pay gets a deduction up to Rs1.5 lakh for a self-occupied house. In case you have a second home loan for a house you have rented out and do not use yourself, there is no upper limit for the deduction and the entire interest you pay on the loan can be deducted from your total taxable income.
Also, if the house is in joint name, both you and the second owner can get tax benefit for the principal as well as the interest payout.