Education loans are highly useful financial instruments to help you manage expenses related to higher studies or foreign education. They can also help you to save a lot on your income tax.
If you are repaying an education loan, you are eligible to avail tax deduction under Section 80E of the Income Tax Act. The following sections include a detailed rundown of Section 80E.
An education loan that you take for your spouse, children, or adopted children is eligible for tax deductions under Section 80E. However, you have to take an education loan from a financial institution or a charitable organisation.
A financial institution refers to any bank that is functioning according to the Banking Regulation Act of 1949. A charitable organisation is an establishment that is stated in Clause 23C of Section 10.
As per Section 80E, you can claim tax deduction only on the interest component of the EMIs that you pay.
Also read: Section 80CCD of Income Tax Act
As mentioned, you can get a tax deduction on the amount that you pay towards the interest of an education loan.
However, the best part is that you can claim deductions even beyond the maximum benefit of Rs. 1,50,000 available under Section 80C.
Notably, you can claim a tax deduction for the amount paid as tuition fee under Section 80C, while the deduction for education loan interest is provided under Section 80E.
To avail of a tax deduction under Section 80E, you need to fulfil the following criteria:
The total interest you pay towards the education loan in one financial year qualifies for tax deduction under Section 80E of the Income Tax Act. There is no limit on the maximum amount that you can avail as a deduction under Section 80E. However, you need to obtain a certificate from your financial institution.
The certificate in question must have details of the interest and principal components of the education loan for a particular financial year.
The tax deduction for the interest you pay on an education loan begins as soon as you start to repay your loan. However, you can avail of this tax benefit only for eight years from the year you start to repay your loan or until you repay the interest amount entirely (whichever comes before).
For instance, if you completely repay your loan within seven years, then you cannot avail of this tax benefit for eight years. Contrarily, if you take more than eight years to repay the loan, then you cannot claim a tax deduction on the interest beyond the eighth year.
If you have taken an education loan for yourself, spouse, children or anyone to whom you are a legal guardian, then you can claim such a deduction. If you share the EMI payments with your parents, then they can claim deductions for the interest part they are paying. You can claim benefits for the rest portion of the EMI’s interest component provided both parties fulfil all necessary conditions.
You can claim tax deductions under Section 80E of the Income Tax Act while you file your ITR. You do not need to attach any documentary proof for availing of this deduction. However, you might need to keep certain documents handy in case the IT Department asks for them for scrutiny.
These documents include:
To understand the calculations of tax benefits under Section 80E, let’s take the following example. Suppose you have a gross income of Rs. 6 lakh for a financial year. You have paid Rs. 1 lakh towards the interest of your education loan.
The amount you pay as education loan interest will be deducted from your gross total income under Section 80E. Now, your taxable income will come down to Rs 5 lakh (Rs 6 lakh- Rs 1 lakh).
An education loan is a commonly used financial option that individuals use to fund higher studies for their children or dependants. You can easily avail of a tax deduction for the interest amount that you pay for such education loans under Section 80E of the Income Tax Act. However, make sure to fulfil certain eligibility criteria to be eligible for such deductions.
Yes, you can claim tax benefits even if you take an education loan for studying in a foreign country. As per Section 80E of the Income TaxAct, individuals can enjoy deductions on the interest paid for loans taken to fund higher studies or foreign education.
No, Section 80E of Income Tax does not fall under Section 80C. Under Section 80E, you can claim tax benefits for the amount you pay as interest for education loans. However, under 80C, you can seek tax deductions on the amount you pay for the tuition fee of your education.
No, you are not eligible to claim tax deductions under Section 80E if you take an education loan from any lending organization. This benefit is available only for education loans that you take from registered financial institutions or charitable organizations.
No, you cannot avail of a tax benefits under Section 80E if you take an employee’s education. The loan has to be from a registered financial institution or charitable institution. Even if the terms remain the same, you won’t qualify for tax deductions for an education loan that you take from your employer.
Higher studies, as stated by Section 80E, are as follows:
> Courses that one pursues after successful completion of the 12th standard examination
> Courses should be full-time in nature for any field such as medical, engineering, humanities, applied science, management, nursing etc
> Vocational courses that one pursues after 12th standard
> Courses pursued in institutions abroad as well as within India
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
Public Provident Fund (PPF) – Know PPF Details and Its BenefitsIn 1968, the National Savings Institute introduced the PPF scheme. The Public Provident Fund (PPF) ... Read More »
Previous Year in Income Tax: Exceptions on Taxation‘Previous Year’ in the Income Tax Act, 1961 is an important concept associated with the payment... Read More »
What is Anti-Dumping Duty (ADD) – Its Working, Examples and CalculationAnti-dumping duty refers to a tax or other charges levied on a particular imported product. The con... Read More »
Loan to Purchase Land – Types, Features, Eligibility and Documents RequiredLoans for land purchase or plot loans are secured loans given for purchasing plots of land. Borrowe... Read More »
List of 11 Tax-Free Income Sources in India (2023)There are many sources through which a person can earn his/her income. It can be income from salary... Read More »
New GST Rates in India (2023) – Latest Changes in GST RatesGST or the Goods and Services Tax is one of the most significant tax reforms to be ushered in since... Read More »
What is Input Tax Credit (ITC) in GST – Eligibility and Documents Required To Claim ITCGST is consumption-based taxation levied at all stages in a value chain. Set-off of GST paid in the... Read More »
What is Cess on Income Tax: Overview, Types and CalculationCess is a tax on taxes imposed by the Central Government or state governments for specific reasons.... Read More »
Best SIP Mutual Funds To Invest In India (2023) – Its Types And TaxationA Systematic Investment Plan (SIP) is a convenient way to invest a fixed sum in mutual funds. For i... Read More »
All information is subject to specific conditions | © 2023 Navi Technologies Ltd. All rights are reserved.