Tax Benefits on Education Loan Under Section 80E

    Updated on: 29 Sep 2023


    When it comes to education loans, many students are unaware of the tax benefits and exemptions available to them. Section 80E of the Income Tax Act provides significant relief by allowing individuals to claim deductions on the interest paid towards education loan repayment. However, this valuable information is often overlooked during the loan application process. 
     

    Table of contents

    1. What is section 80e education loan deduction?
    2. Who can claim section 80e deductions?
    3. What is the duration of availing tax benefits?
    4. When can you claim section 80e deductions?
    5. What is the maximum amount of tax benefits?
    6. What is the Eligibility criteria?
    7. How to claim tax benefits?
    8. Should you repay your loan early?
    9. Frequently asked questions

    What is the section 80E education loan deduction?

    Deductions under Section 80E of the Income Tax Act is a provision that allows individuals to claim tax deductions on the education loan interest deduction. The principal repayment amount, however, does not qualify for any tax benefits under this section.

    The deduction under Section 80E Chapter vi(a) of the Income Tax Act allows for the total interest paid on education loan EMIs during the financial year. There is no maximum limit on the tax exemption amount on education loans. To claim the deduction, you must obtain a certificate from your bank that clearly separates the principal and interest portions of the loan payment. Only the interest paid is eligible for tax benefits, while there is no tax benefit for the principal repayment.

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    Who can claim tax benefits on education loans?

    Taxpayers who have taken loans exclusively to fund higher education are eligible to claim these deductions. Tax exemptions can only be claimed by individuals who have taken education loans in their own names. Both parents and the child, under whose name an education loan has been sanctioned, can avail of the benefits of tax deductions under Section 80E.;

    What is the period of availing tax benefits on education loans?

    The deduction can be claimed for a maximum of eight consecutive assessment years, starting from the year in which the individual starts repaying the loan or until the interest is fully repaid, whichever occurs earlier. Your bank issues a certificate as to the amount of interest paid by you on the education loan in the given year. 

    When can you claim tax benefits on education loans under Section 80E?

    The deduction under Chapter vi(a) under section 80E of the Income tax act can be claimed only once you start with the repayment and is available up to a span of eight years, or until the time the payment of interest is incomplete.For example, Raj, a borrower of an education loan, repaid his loan within a period of four years, and then he can claim the deduction only for those four years. On the other hand, Yash, another education loan borrower, repaid his loan during the full 8-year repayment period, and can avail his tax deductions for the full 8 years.
     

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    What is the maximum amount that can be claimed under Section 80E?

    Similar to deductions under Section 80C and Section 80D, the interest component of education loans can be deducted from your income when calculating your tax liability. The deduction under Chapter vi(a) of Section 80E has no specific limit, allowing you to claim the entire interest amount paid in a financial year, regardless of the actual sum. This means that you can avail of the deduction for the entire interest paid, providing significant tax relief for education loan borrowers. This deduction for Chapter vi(a) of Section 80E of the Income Tax Act falls above and beyond the Rs. 1,50,000 deduction permitted under Section 80C.

    What is the eligibility criteria to claim tax benefits on education loans?

    1. Both parents and the child, under whose name an education loan has been sanctioned, can avail of the benefits of tax deductions under Section 80E. 
    2. Hindu Undivided Families (HUF) and companies are not eligible for these tax exemptions.
    3. Loans from friends and relatives do not qualify for the benefits provided under Section 80E.
    4. These tax benefits are specifically applicable to the education loan interest deductions.

     

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    How to claim deductions under Section 80E?

    To claim the tax benefits under Section 80E of the Income Tax Act, individuals must follow these steps:

    1. Obtain a certificate: Your bank issues a certificate as to the amount of interest paid by you on the education loan in the given year. 
    2. Calculate the interest paid: Calculate the total interest paid during the financial year. This can be derived from the interest portion mentioned in the loan statement or the certificate obtained from the bank.
    3. File an income tax return: While filing your income tax return, report the interest paid under Section 80E of the Income Tax Act. Ensure that you accurately enter the details and double-check for any errors.
    4. Retain supporting documents: Maintain the necessary documents as proof of repayment, including loan statements, interest certificates, and any other relevant documentation. These documents are required for verification purposes or in case of any future audits.
    5. Keep records for future reference: It is advisable to retain copies of all documents related to the education loan, including loan agreements, payment receipts, and bank statements, for future reference and reference during subsequent financial years.

     

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    Should you repay your loan early?

    Some borrowers opt to utilize the entire repayment period for their education loan, strategically leveraging the tax benefits. This approach allows them to allocate their surplus funds towards investments instead of repaying the loan. By stretching the repayment period, they can take advantage of the education loan interest deduction for a longer duration. This strategy can be beneficial for individuals who believe they can generate higher returns through investments compared to the loan interest rate.

    Choosing the right partner for your education loan journey is crucial. GyanDhan not only connects students with a wide network of banks and lenders but also provides comprehensive guidance on tax benefits and other deductions that can be claimed. By working with professionals who understand the intricacies of education loan financing, you can make informed decisions and optimize your tax savings.

    Don't miss out on the opportunity to minimize your tax liability and manage the financial challenges associated with higher education. Take advantage of the tax benefits and exemptions available to you under Section 80E. Start your education loan journey with GyanDhan and ensure you receive expert assistance throughout the process.

    Start your abroad education loan journey by checking your education loan eligibility!

    Frequently asked questions

    For how long can you claim the deductions under Section 80E?

    The education loan interest deduction can be utilized for a maximum of eight years from the year of commencement of repayment or until you have completely repaid the interest amount, whichever occurs first.

    Who can claim tax benefits on education loans under Section 80E?

    The tax deduction under Section 80E is applicable to all individuals, irrespective of whether they are salaried or self-employed. The deduction can be claimed by the individual who has taken the education loan or by the parent or guardian of the student if the loan is taken in the student's name.

    What are the documents required to claim tax deductions for an education loan?

    To claim tax deductions for an education loan, you are required to provide a certificate issued by the lending institution or a recognized charitable organization from which you obtained the loan.

    Do NBFCs offer tax benefits on abroad education loans?

    As of now, only HDFC Credila provides tax benefits for education loans among NBFCs.

    Can I claim 80E while filing ITR?

    Yes, you can claim tax benefits under Section 80E while filing ITR.

    What is the maximum limit under Section 80E?

    Under Section 80E of the Indian Income Tax Act, there is no maximum limit or cap specified for claiming deductions on the interest paid towards education loan repayment. You can claim the interest amount as a deduction from your taxable income, without any upper limit.

    Which courses are eligible for tax benefits under Section 80E?

    All types of courses including vocational studies are applicable for tax benefits under Section 80E.

    Can I claim a deduction for the principal as well as the interest amount of the EMI that I am paying for an education loan under 80E?

    No, for tax benefits under section 80e you can claim deductions only on the interest paid and not on the principal amount.

    Which banks provide tax benefits on education loans?

    Tax exemptions on education loans are only available through public and private banks only. As of now, HDFC Credila is the only NBFC that provides tax benefits.

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    First published date: 17 Jan 2018


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About author

Aishwarya Bhatt
A bookworm who transforms into a web-usability evangelist, when her favorite blend of coffee is flowing in her veins. Happiest in a bookstore and when she is painting with words on paper!

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