Educational Loan Tax Benefits Under Chapter VI-A of Section 80E

    Updated on: 27 Sep 2022


    Financial help is one of the greatest difficulties faced by students who want to study abroad. Some receive funds from their parents and relatives while others go for Educational Loans. Banks and NBFC’s sanction educational loans and they also apply some interest on the principal amount. And there is great news for all students and education loan-seekers because the interest paid on the education loan to study abroad will fall under ‘Deductions’ on the Income Tax returns. Under Chapter VI-A of Section 80E, Don’t need to pay tax on the interest payment made towards education loans.

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    How To Eligible For Tax Exemption?

    Following are the criteria which you need to fulfil to be eligible for tax benefits when applying for education loan -

    • One can file for tax benefits only and only if he or she has taken an education loan for higher studies of himself or herself, the spouse, children and or for the student of whom he or she is the registered as a legal guardian. Moreover, you can claim deductions on the loan only if the loan has been sanctioned on your name.
    • This Income Tax deduction on educational loans is valid for higher studies of the spouse or children of a legal taxpayer, i.e. even your parents can claim the deduction for paying the interest on your education loan.
    • Earlier, this deduction on education loan was valid only for those pursuing full-time courses for any graduate in the ‘main-streams’, such as Engineering, Medicine, Management, Applied Sciences, Pure Sciences along with Mathematics and Statistics. But now, it is applicable for almost all courses, including the Vocational Studies. In fact, it now includes courses which students study abroad as well.
    • This tax-based deduction is permitted only on those education loans which availed from a bank or any other valid financial institution or an approved charitable trust. This means that no deductions are offered if the education loan has been taken from some employer, family, relatives or friends. This also means that education loans from most NBFCs are not eligible for this deduction.
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    How To Claim Tax Deduction on Education Loans?

    1. Your bank issues a certificate as to the amount of interest paid by you on the education loan in the given year. This certificate is required for claiming the tax benefit.
    2. This deduction for Section 80E fall above and beyond the Rs. 1,50,000 deduction permitted under Section 80C.
    3. To gain tax benefits on an educational loan, you should inform your firm's HR Department or Accounts Department well in time so that lesser TDS is deducted from your pay. Otherwise, your money will get deducted and then you will have to claim it by filing for tax returns.
    4. The deduction on education loan 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 incomplete. Thus, if you repay the loan within a period of four years, then you can claim the deduction only for those four years.
    5. This tax benefit is no longer biased subjects and streams of study. It includes "all fields of studies (including vocational studies) pursued after passing the Senior Secondary Examination or its equal from any school, board or university recognized by the Central Government or State Government or local authority or by any other authority authorized by the Central Government or State Government or local authority to do so".

     

    A Few Noteworthy Points -

    1. Tax benefits are valid only on the ‘Interest’ and not the ‘Principal’ amount paid.
    2. There is no upper limit set as such as per which the rate of interest transforms as deductions.
    3. There is no upper limit as such even for the grant of deduction.  That is in respect of interest lie on the educational loan for higher education.

    Thus, if any of your family members have taken an educational loan then thanks to this provision of the Indian tax law, they can save on tax!

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    Also, if you are planning to take an education loan via SBI, then we have launched a new service of door pickup of documents (at zero cost) which will reduce your time and effort substantially. 

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