Education Loan Deduction Under Section 80e

One of the main challenges faced by students who want to study abroad is financial assistance. Some earn funds from their relatives and parents, while others go for overseas educational loans. Banks and NBFCs approve educational loans, and some 80E interest on education loan on the principal sum is also paid. And all students and education loan seekers have fantastic news. The interest charged on the education loan section 80E to study abroad would fall under ‘Deductions’ on the returns on the Income Tax. Tax benefits Under Chapter VI-A of Section 80E, include the exemption to pay tax on educational loans’ interest paymentucation abroad, including both vocational and regular courses.

Understanding Section 80E Tax Exemption 

The 80E education loan tax benefit is for individuals who have taken out loans for higher education. It applies to the loan’s interest, not the principal, and can be claimed for a maximum of eight years, starting when interest payments begin. For instance, consider Raj, who’s repaying a loan for advanced studies in EMIs. He can benefit from the interest on education loan deduction, reducing his financial burden while investing in education.

Similar to deductions under Sections 80C and 80D, the interest component of your education loan is deducted from your income before calculating your total taxable income for tax purposes. However, what sets education loan under 80E apart is that there is no upper limit or ceiling on the exemption. You can claim a deduction for the entire interest amount paid during a financial year, regardless of its magnitude.

To illustrate, consider this scenario: If your gross taxable income, after accounting for other deductions, amounts to Rs. 6.7 lakh, and you’ve repaid Rs. 2,00,000 as the interest component of your education loan, your taxable income for calculation purposes would be reduced to Rs. 4.7 lakh, resulting in a lower tax liability.

Eligibility Criteria For Tax Deduction Under Section 80E

Here are the key eligibility criteria for claiming tax deduction on education loans under Section 80E:

• The deduction can be claimed only by the loan borrower – either the student or parent/guardian who has taken the loan
• The loan must be taken from a financial institution or approved charitable institution for higher studies of self, spouse or children
• Higher studies include pursuing graduation, post graduation courses in India or abroad
• The loan must be taken for tuition fees, examination fees and other expenses related to pursuing the course
• There is no limit on the loan amount to claim deduction. The entire interest amount can be claimed as deduction.
• The deduction can be claimed for a maximum period of 8 years or until the interest is paid off, whichever is earlier.

Spouse And Children Eligibility Under Section 80E:

• Tax deductions under Section 80E for educational loans can also be claimed when financing the higher studies of your spouse or children. 
• Even parents can claim this deduction for paying interest on their child’s education loan.

Expanded Course Eligibility Under Section 80E:

Previously limited to full-time mainstream graduate courses, this deduction now applies to almost all courses, including vocational studies and courses often pursued abroad.

Valid Lender Requirement:

• Only education loans obtained from a recognised financial institution, bank, or authorised charitable trust are eligible for this tax deduction.
• Loans taken from employers, family members, relatives, or friends are not eligible for Section 80E deduction.
• Most NBFCs do not qualify for this deduction under Section 80E.

Documents Required For Tax Deductions Under Section 80E 

Here are the key documents required for claiming tax deduction on education loan interest under Section 80E:

Interest Certificate from the bank/financial institution providing the education loan

Loan Sanction Letter and Loan Disbursement Letter showing the break-up of tuition fees and other expenses: 

• Education Loan Repayment Schedule
• Receipts of annual education loan interest payment
• Marksheets and Certificates supporting completion of the course
• Bank account statements showing disbursal and payment of education loan EMIs
• Digital signature Certificate if filing tax returns online

So in summary, the tax deduction claim under section 80E should be supported by official educational loan papers from the bank, along with documentation for interest payment and completion of the degree course. The aim is to validate that its a genuine education loan.

How To Claim An Education Loan Tax Deduction?

Here are the key steps to claim tax deduction on education loan interest under Section 80E:

Step 1: Your bank will issue a certificate indicating the interest paid on your Section 80E education loan for the relevant year. This certificate is crucial for claiming tax benefits.

Step 2: Under Section 80E, you can deduct the cumulative interest portion of the EMI paid during the financial year. There is no maximum limit on the deduction for the interest paid. Ensure the certificate separates the principal and interest amounts.

Step 3: Be aware that no tax benefit is granted for principal repayment on the education loan.

Step 4: Note that the Section 80E deduction surpasses the Rs. 1,50,000 deduction limit allowed under Section 80C.

Step 5: Notify your HR or Accounts department well in advance to facilitate educational loan tax benefits. This can help reduce TDS deductions from your salary.

Step 6: Understand that the education loan deduction is applicable after loan repayment begins. It remains valid for up to eight years or until the interest payment is completed. If you repay the loan within four years, claim the deduction only for those four years.

Step 7: Recognise that this tax benefit is inclusive, covering all fields of study, including vocational courses. It applies to education pursued after passing the Senior Secondary Examination from recognised institutions approved by government authorities.

Deductions Under Section 80E

You can claim a deduction under Section 80E for the total interest paid on your education loan during the financial year. There is no maximum 80E education loan  limit for this deduction. To qualify, obtain a certificate from your bank distinguishing between the principal and interest portions of the loan payment; however, note that the deduction only applies to the interest, not the principal amount.

Duration Of Deduction

Deductions for the interest portion of the loan commence in the year when the taxpayer begins repaying the loan. However, once repayment starts, individuals can claim deductions under Section 80E for a maximum of 8 years or until the interest amount is fully repaid, whichever comes earlier.

Benefits Of Early Education Loan Repayment

Here are some early education loan repayment benefits that can be helpful for tax benefits: 

1. Maximising Tax Benefits: Some prefer utilising the full 8-year repayment period to optimise deductions, allowing them to invest surplus income instead of using it for loan repayment.
   
2. Financial Flexibility: Stretching the repayment period may suit those who believe they can grow their income through investments and prefer not to allocate it for EMIs.
   
3. Debt Freedom: Paying off the loan early liberates individuals from EMI burdens and reduces the risk of falling into a debt trap.
   
4. Improved Credit Score: Timely repayment enhances credit scores, making it easier to access future financial assistance from lenders.
   
5. Wider Access to Education: Education loans and tax benefits promote higher education accessibility for more individuals.
   
6. Financial Planning: Deciding on the repayment of education loan, whether extended or early, is essential for financial planning and future financial stability.

A Few Noteworthy Points

• Only the ‘Interest’ and not the ‘Principal’ sum charged is valid for tax benefits.
• There is no upper limit set, which turns the interest rate into deductions.
• As such, there is no upper limit for the granting of the deduction. That is on the education loan for higher education in terms of interest.

Therefore, if any of your family members have taken out an educational loan, they will save on tax thanks to the Tax Benefits Under Chapter VI-A of Section 80E!

FAQS

1. Is Section 80E part of Section 80C? 

No, Section 80E provides deductions for interest paid on educational loans for higher education, while Section 80C provides deductions for tuition fees paid for education.

2. Can one claim both the principal and interest amount on education loan EMIs under Section 80E? 

No, deductions under Section 80E are specifically for the interest part of the EMI; you cannot claim deductions for the principal amount.

3. How much amount can I claim as a deduction under this section? 

There is no maximum limit on the deduction amount under Section 80E. You can claim the full interest amount paid as a deduction.

4. Can one get a deduction under 80E when taking an education loan for a child’s overseas studies? 

Yes, you can claim a deduction under Section 80E even if your child is pursuing higher education abroad, including both vocational and regular courses.

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