Section 80E: Tax Benefit on Education Loan

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

What is the Section 80E Income Tax Deduction? 

Deduction for interest on education loans under section 80E Income Tax Act 1961 is a provision that allows individuals to claim tax deductions on education loans. The principal repayment amount, however, does not qualify for any tax benefits under this section 80e deductions.

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

Section 80E Tax Exemption Limits

When you repay an education loan, the interest portion of your repayment qualifies for a tax deduction under income tax 80e. What’s special about this 80e deduction is that, unlike deductions under Section 80C or Section 80D, which have a maximum limit, Section 80E doesn’t have any upper cap or there is no interest on education loan deduction limit.

This means you can claim education loan income tax benefit or the full amount of interest you’ve paid in a financial year as a 80e deduction from your taxable income, no matter how high it is. In other words, the more interest you pay, the greater your tax benefit.

For example, if your income after other deductions is INR 6 lakh and you pay INR 1 lakh as interest on your education loan, you can deduct this entire amount. As a result, your taxable income reduces to INR 5 lakh, helping you save a big amount on taxes.

Section 80E: Education Loan Tax Benefits 

Taxpayers who have taken loans exclusively to fund higher education can claim these education loan income tax exemption. Education loan 80E 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 income tax benefits under Section 80e deductions.

Period of Section 80E Deduction

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 stating the amount of interest you paid on the education loan in the given year to help you claim income tax benefit on education loan.
 

Read Also: ITR Requirement for Education Loan

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

The education loan income tax exemption limit under Chapter vi(a) of sec 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.

Maximum Amount that can be Claimed Under Section 80E Income Tax?

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 Sec 80E of the Income Tax Act falls above and beyond the Rs. 1,50,000 deduction permitted under Section 80C.

Eligibility for Section 80E Deductions

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

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  The loan should be taken from a financial institution since section 80e deductions cannot be claimed for loans borrowed from friends, family, or acquaintances. To claim education loan rebate in income tax, borrow from certified financial institution only. 
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  Both parents and the child, under whose name an education loan has been sanctioned, can avail of the benefits of tax deductions under Sec 80E. 
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  Hindu Undivided Families (HUF) and companies are not eligible for these education loan exemptions.

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  In order to claim education loan exemption, the loan must be taken for higher education. You can borrow for your own studies, your spouse's education, your dependent children's education, or a student under your legal guardianship.
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  If your parents contribute to the EMI payments, they can claim a deduction for the interest on their portion. Similarly, you can claim the deduction for student loan interest on the portion you pay.

These are the eligibility criteria which you are required to qualify to claim education loan rebate in income tax.
 

Read Also: ITR Requirement for Education Loan

How to Claim Section 80E Deductions for Tax Benefits? 

To claim the tax benefit on education loan under 80E section of Income Tax Act 1961, individuals must follow these steps:

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  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. 

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  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.

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  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.

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  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.

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  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.

The above steps will help you claim education loan rebate in income tax under section 80e deductions.

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 tax benefits under section 80e deductions 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 education loan exemption 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 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.

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

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  Education Loan Without Collateral
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  Education Loan Interest Rate
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  Education Loan For Abroad Studies
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  Documents Required for Education Loan

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