Know Education Loan Tax Benefits: All About Section 80E of Income Tax Act

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Picture of Shivani Mani

Shivani Mani

Lead, Student Success - FundRight

Studying abroad?

How exciting!

More global exposure, more cultures to know about, more people to learn from, and…

And?

And bigger tuition fees to pay, bigger education loans to take, and probably bigger interest to pay off.

Well, that doesn’t sound nearly as exciting as I thought.

Yes, but the latter can be taken care of. Let us introduce you to this incredible provision in the Income Tax Act helping reduce interest on your education loan called Section 80E.

With your higher education, you are starting a new phase of your life. Burdening it with the repayment of your education loan with a high RoI is the last thing you would want to do.

So, take advantage of education loan tax benefits and learn about Section 80E of Income Tax Act.

Read on and unlock the “not-so-secret” secret to massive savings on income tax against an education loan.

Table of Contents

➔     What is Section 80E of the Income Tax Act?

➔     Education Loan Tax Benefits Under Section 80E

➔     Deductions/ Savings Under Section 80E of Income Tax Act

➔     Who Can Claim Deduction Under Section 80E of Income Tax Act?

➔     Important Documents to Claim Deduction Under Section 80E of Income Tax Act

➔     How to Claim Savings?

➔     When Will Section 80E Not Be Beneficial to You?

What is Section 80E of the Income Tax Act?

When you don’t want a large sum of your hard-earned money to go towards paying income tax, you try to find avenues that can help reduce this burden.

Now, even though completely avoiding paying tax may not be possible, you can still cause deductions on your interest repayment against education loans.

And for that, you must get a clear understanding of what section 80E of Income Tax Act is and how you can take advantage of it.

But it is so difficult to understand this jibber-jabber.

Well then let us explain it in simple language.

Basically, income tax deduction against education loans. That is what Section 80E of Income Tax Act provides.

But before we delve further into the nitty-gritty of this section, here are a few things you must know. With this information, it will become easier for you to understand the benefits of Section 80E.

 

Section 80E Explained in a Phrase Provides income tax deduction against an education loan
How to Take Advantage of Section 80E? Claim savings under this section while filing your taxes
How Much Can I Save Through Section 80E? Depends on the size of your annual salary, income tax bracket, and education loan
Who Can Claim It? Either the applicant (you) or the co-applicant (parent/ guardian)
For How Long Can I Claim it? 8 years
What Should be the Criteria for the Purpose of an Education Loan? You can only claim it against an education loan taken only for the purpose of higher education.
Can I Take the Education Loan From Any Bank? It must be an RBI-approved financial or charitable institution and no foreign lender.
What is the Upper Limit on Savings Through Section 80E? No cap
Is Section 80E Always a Good Option? Not always. Read below for further details.

Education Loan Tax Benefits Under Section 80E

Now that you are aware of the basics of this provision, let’s understand how it is advantageous for you. And in which cases would it be a good idea to opt for this claim.

  • First and foremost – you get massive deductions on your education loan interest rate under this section.
  • The higher the percentage of income tax you are paying, the higher deductions you will be getting. This means if you or your co-applicant doesn’t have a high taxable income, claiming section 80E might not be very beneficial.
  • The tenure for the deduction claim is 8 years. So, to take maximum advantage of this provision, start repaying your education loan once you start earning a good salary rather than repaying it while you’re still studying. It will increase the deductible amount and help you not lose the golden years of this tenure.
  • Make sure to take a loan from an Indian financial or charitable institution recognized by RBI. You will not get these savings if you get a loan from a foreign lender.

Deductions/ Savings Under Section 80E of Income Tax Act

deduction

IAT: Education Loan Tax Benefits | Section 80E of Income Tax Act

You took an education loan of 30 L.

According to the rate of interest (RoI), you’re paying an average annual interest of 3.1 L on this loan, which makes it a total of 25 L over the course of 8 years.

Overwhelming? Let’s use Section 80E.

Now,

  • if you claim this entire annual interest of 3.1 L and
  • you or your co-applicant falls under the 30% income tax bracket,

you may end up saving 1 LPA on your taxes.

So, over the course of 8 years, you will end up saving 8 LPA.

8 lakhs per annum!!!

Now if that isn’t a massive deduction then what is!

In short:

Location

IAT: Education Loan Tax Benefits | Section 80E of Income Tax Act

Who Can Claim Deduction Under Section 80E of Income Tax Act?

To be eligible to claim the deductions, you must qualify for the following criteria:

1. Deduction Amount

Since there is no cap on the deduction, any amount of interest repayment on an education loan is eligible. Depending upon various other factors, the entire amount of interest can be deducted from the taxable income.

2. Purpose of Education Loan

The purpose of an education loan should only be higher education from a recognized institution. Other than that, there are no conditions on it being India or abroad, UG or PG, and public or private institution.

Since you can take this loan for yourself, your spouse, children, or legal guardian, you, as well as your parents can claim the deduction.

 3. Source of Loan

You must have taken the loan only from an RBI-approved Indian financial or charitable institution.

4. Interest Repayment Status

You can only claim the deduction once the interest on the loan has been paid.

NOTE: The information mentioned is only for basic understanding. If you wish to get amount-specific information, contact our expert Board of Advisors.

Important Documents to Claim Deduction Under Section 80E of Income Tax Act

You need proof in the form of documentation to take advantage of education loan tax benefits. Before you begin your claiming process, keep the following documents ready.

loan

Location

IAT: Education Loan Tax Benefits | Section 80E of Income Tax Act

How to Claim Savings?

claim

IAT: Education Loan Tax Benefits | Section 80E of Income Tax Act

Thanks to the accessibility of information and continuously evolving technology, the claiming process is fairly simple.

As mentioned above, you can file your ITR through the official website of Income Tax. but how can you claim Section 80E?

Here’s how:

  • While filing your ITR, under Section 80E, mention the amount paid towards the interest of your or your child’s education loan.
  • Then, deduct that amount from the taxable income.
  • If you are a salaried employee, you can simply provide your employer with proof of interest payment before TDS.

When Will Section 80E Not Be Beneficial to You?

Although in the world of education loan tax benefits, Section 80E of Income Tax Act is common knowledge, it may not always be advantageous.

Here are some situations when claiming 80E would not be beneficial to you.

 

Circumstances Reasons
If, after studying, you will be working abroad Because you will not be filing taxes in India
If you are not in India during your repayment and your co-applicant is an NRI
If your co-applicant doesn’t earn enough Lower salary Lower tax filed Less deduction on interest Not very beneficial
Your co-applicant is about to be retired to is retired Because the taxable income reduces drastically after retirement due to the senior citizen quota.

 

Still confused?

We know what you are wondering.

If only there was the easiest way to get the best student loans with the maximum savings.

Well, there is.

The right way to fund your higher education. Save yourself from the confusing data that the internet bombards you with and avail the best education loan with FundRight.

Because you shouldn’t have to settle for anything less than what you deserve.

Contact us to know more.

Picture of Shivani Mani

Shivani Mani

Shivani, aka 'Sheen' brings in 15+ years of experience in banking & finance. An IIM-A alumna, she actively interacts with students & provides actionable solutions to their study abroad funding issues.

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