Education loan tax benefits in India

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Introduction

Education expenses have surged sharply in India and have developed a huge financial burden on the students and their parents as well. With the alarming rise in education cost, students undergo immense burden to fund their education and end up taking a pause or giving up on their dream of pursuing higher studies. Most of the students also end up spending a considerable amount of savings in order to meet their education related expenses like tuition fees, living expenses, book expenses etc. But the easy availability of education loans had made the dreams of the students feasible and achievable. In addition to that, students who take education loan to study in India or abroad are also permitted to utilize income tax benefit on education loan i.e if you have taken an education loan or repaying the same, according to Section 80E of the Income Tax Act, the interest being paid on your education loan can be claimed as deduction from the total income. But there are certain factors that you must know in order to enjoy this tax benefit. To know more, dive into this article where we will highlight the education loan tax benefits in India and how one can claim this education loan deduction.

What is Section 80E Income Tax Act? 

According to Section 80E Income Tax Act, a person can claim a deduction on the interest component of the loan. As every taxpayer desires to discover a new approach which reduces the tax burden on an individual’s income, citizens can utilize Section 80E of the Income Tax Act which caters towards the educational domain only. Under this Section 80E, a person gets provisions for tax deductions on only educational loans. This means that interest payment done by a person towards clearing education loans qualifies to avail tax deduction under Section 80E. 

Section 80E Income Tax Deduction 

1. An individual who took an education loan to finance higher studies of self, spouse, children, or for the student whom the person is the legal guardian can only avail this tax benefit under Section 80E. Education loans taken to support your siblings or relative’s higher studies are not eligible to avail this tax benefit. 

2. To claim education loan deduction under Section 80E, one must take an education loan from a financial [Financial institution where the Banking Regulation Act, 1949 applies or is notified by the Central Government] or charitable institution [approved under Section 10(23c) or 80G (2)(a)]

3. A loan taken from a relative or employer and the subsequent interest paid is not eligible for tax deductions under Section 80E. 

4. A Hindu Undivided Family cannot claim deduction under Section 80E. 

5. One can claim deduction only for the interest part of the loan and not the principal part of the loan. 

6. An individual can claim this deduction only if the education loan tax benefits have been taken in his/her own name. 

7. Students who took an education loan to finance their education abroad can also avail this tax benefit. 

Education Loan Tax Benefits Under Section 80E and Section 80C

To understand the income tax benefit on education loans, students must understand the difference between Section 80C and Section 80E. 

Section 80C- It provides deduction in respect of tuition fees paid for education 
Section 80E- It provides a deduction for the interest on the loan taken for education 

Under Section 80E of the Income Tax Act, 1961, an individual who took an education loan for higher studies can also avail this tax benefit, and even if an individual under Section 80C has utilized the maximum available deduction, they can still claim deduction under Section 80E. 

Eligibility for Tax Deduction under Section 80E

S.No

Eligibility

   1. 

Hindu undivided families (HUF) and companies cannot avail deductions under this section.

   2.

Loans taken from friends or relatives are not eligible under this section.

   3.

Income tax benefit on education loan under Section 80E can be only claimed on the interest component.

   4.

Education loan tax exemption can be claimed by the parent as well as the student (the person who pays the loan whether the parent or student can start claiming education loan deduction under 80E

   5.

Education loan deduction can be availed only if the loan is taken to fund higher education. (Higher education refers to the education pursued after completing the Senior Secondary Examination (SSE))

   6.

Deduction under section 80E can be availed for 8 years only. An individual cannot claim for deductions beyond 8 years.

   7.

Deduction under section 80E can be availed if the loan is taken under the name of a person liable to pay taxes only.

Education loan tax benefits - Claiming 80E Tax Deductions

Under Section 80E, the deduction amount is only the interest paid on the loan taken for higher studies i.e. you can claim tax benefit on the entire amount of interest paid and not on the principal amount of the loan. So, the education loan deduction can be claimed from the year in which the student starts paying interest on the loan for higher education. The maximum period allowed to claim deduction is up to 8 years starting the year in which you start repaying the interest on the loan or till the time interest is paid fully, whichever is less.

About the organization:VidyaLoans is an organization which helps Indian students in India to secure a non-collateral loan from Government banks up to 7.5 Lakhs. We have a dedicated team of professionals who assist students with queries and guide them throughout the loan process. Our Team at Vidyaloans is committed to sanction the best loan option suiting the applicant's profile and needs, in a stipulated time frame.