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Guide to Education Exemption Loan Under Chapter VI-A of Section 80E

Written by Shreya Berry

Shreya has expertise in writing engaging content for the readers and has a deep interest in unique applications of technology in various domains. She has worked closely on projects with Neil Patel Digital, Hindustan Times, News 18 and Shiksha.

October 22, 2020

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 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 a 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 payments.

How Can You Apply for a Tax Exemption?

  • The conditions you need to meet to be eligible for tax benefits when applying for education loans are as follows-
  • Only if he or she has taken a higher education loan for him or herself, the spouse, children. Or for the student he or she is registered as a legal guardian can apply for tax benefits. You can also only assert deductions on the loan if the loan has approved your name.
  • For higher studies of a legal taxpayer’s spouse or children, this income tax deduction under section 80E on educational loans is real. That is even your parents will assert the deduction for paying the 80E interest on education loan on your education loan.
  • Previously, this deduction under education loan 80E was only applicable for those pursuing full-time courses for any main-stream graduate such as Engineering, Pharmacy, Management, Applied Sciences, Pure Sciences, along with Mathematics and Statistics. But now, for almost all courses, including vocational studies, it is valid. In reality, it now includes courses that are often taken abroad by students.
  • Only those education loans which have been used by a bank or some other valid financial institution or an authorized charitable trust are entitled to claim this tax-based deduction. This implies that no deductions are given if the section 80E education loan has been taken by any employer, family, relatives, or friends. This also suggests that education loans are not eligible for this deduction under 80E from most NBFCs.

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How to Claim an Education Loan Tax Deduction?

  • Your bank will issue a certificate about the interest rate on the section 80E education loan paid by you in the year in question. This certificate is required to assert a tax advantage. The permissible deduction under 80E is the cumulative portion of the EMI interest charged during the financial year. The maximum amount that is permitted as a deduction is not limited. Such a certificate should separate the principal and interest portion of the education credit you charged during the financial year. As a deduction, the total interest paid will be permitted. For principal repayment, no tax gain is permitted.
  • This Section 80E deduction exceeds and exceeds the Rs. 1,50,000 deduction allowed under Section 80C.
  • You should tell the HR Department or Accounts Department of your company well in time to obtain tax advantages on an educational loan so that less TDS is deducted from your salary. Otherwise, you will be deducted from your money, and then you will have to assert it by filing tax returns.
  • The education loan deduction may be claimed only after the repayment begins and is valid for a period of up to eight years or until the payment of interest is incomplete. Therefore, if you repay the loan within four years, then only for those four years will you demand the deduction.
  • This tax advantage is no longer a prejudice in subjects and research sources. It covers ‘all fields of study (including vocational studies) pursued after passing or equivalent to the Senior Secondary Examination from any school, board or university approved by the central government or state government or local authority or by any other authority allowed to do so by the central government or state government or local authority.’

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!

PS: If there’s anything more you’d like us to know about. Add it to the comments section!

Thank you for reading this blog on ‘Tax Benefits Under Chapter VI-A of Section 80E For Educational Loans’ If you’d like to read more, here are some blogs that might be of interest to you:

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