Tax Benefits on Education Loan Under Section 80E

When it comes to education loans, many students are unaware of the tax benefits and exemptions available to them. Section 80E of Income Tax Act 1961 provides significant relief by allowing individuals to claim deductions on the interest paid towards education loan repayment. However, tax exemption on education loan is a crucial factor that is often overlooked during the loan application process.

What is the Section 80E Education Loan Deduction?

Deductions under tax exemption on education loan 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 education loan tax exemption. 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 Benefit on Education Loan?

Taxpayers who have taken loans exclusively to fund higher education can claim these deductions. Education loan income tax benefit can only be claimed by individuals who have taken education loans in their names. Both parents and the child, under whose name the loan has been sanctioned, can avail of the education loan tax benefits under Section 80 E of Income Tax Act 1961. 

What is the Period of Availing Tax Benefits on Education Loans?

Tax exemption on education loan deductions 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. 
 

Read Also: ITR Requirement for Education Loan

When Can you Claim Tax Benefits on Education Loans under Section 80E?

The 80e deduction limit 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 for up to 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 four years, and then he can claim the education loan tax 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 of his tax deductions for the full 8 years.

What is the Maximum Amount that can be claimed under Section 80E?

Similar to education loan 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 80e deduction limit 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?

To claim tax exemption on education loan applicants should fulfill the following eligibility criteria.

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 education loan exemption.

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.
 

Read Also: ITR Requirement for Education Loan

How to Claim Section 80E Deductions?

To claim the education loan 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 80 E 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 education loan exemption available to you under Section 80 E income tax. Start your education loan journey with GyanDhan and ensure you receive expert assistance throughout the process.

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