Do you know, an education loan not only helps you to fund your higher education but also provides tax benefits. Section 80E of the income tax act, 1961, allows you to take such benefits.
In this article, let us understand how to save income tax if you have taken an education loan for higher studies
What is section 80E?
Section 80E of the Income tax act, 1961, helps you to claim tax deduction for the education loan taken from an approved financial institution or charitable institution.
The education loan must be taken for the purpose of pursuing higher studies after passing the senior secondary examination of its equivalent from any recognised school, board or university.
Taxpayer who is taking benefits of section 80E must have taken the education loan for the purpose of pursuing his own higher education or for the purpose of higher education of his relatives.
Remember, No tax deduction is available under section 80E in respect of repayment of principal amount of education loan.
Who is eligible to claim tax deduction under section 80E?
Tax deduction under section 80E can be claimed by an individual if he/she repays the education loan. Which means, the parent or the child (student), depending on who repays the loan amount can take benefits of section 80E while filing income tax return.
As per section 80E of the Income tax act, 1961, if the education loan is taken for higher studies of self, spouse, children or a student for whom the individual is the legal guardian, then only tax deduction is allowed to the taxpayer.
Therefore, to claim tax deduction under section 80E, education loan can be taken for higher studies of;
- self,
- spouse,
- children, or
- a student for whom the individual is a legal guardian.
However, please note, in order to claim tax deduction under section 80C, the education loan should be in the name of the assessee.
If you have taken it for higher studies of your brothers or sisters, then benefits of section 80E are not available.
Amount of tax deduction under section 80E
Only the interest portion of your EMI paid for the whole financial year is allowed as tax deduction up to a maximum period of 8 years or till the interest is repaid, whichever is earlier.
Period of 8 years will be calculated from the year in which you start repaying the education loan.
For example, if you repay the education loan in 5 years from the date of repayment, then tax deduction under section 80E will be available for these 5 years only. If your repayment exceeds 8 years, then you will not be eligible for tax deduction under section 80E beyond 8 years.
While filing income tax return, you need to get the interest certificate from the financial institution stating the amount repaid as interest and principal. Principal and interest amounts of the education loan paid during the financial year should be mentioned separately in the certificate.
Based on the certificate, you can claim your tax deduction under section 80E while filing income tax return.
Please note, there is no maximum and minimum limit for section 80E deduction. Which means, the total amount you have paid for the whole financial year as interest on education loan can be claimed as tax deduction.
For example, if your gross total income for the financial year 2023-24 is 7,70,000 rupees and you paid 2,10,000 as the interest component of the education loan taken for higher studies, then your total income after section 80E tax deduction will be 5,60,000 rupees, on which tax will be calculated. If you are eligible for some other tax deduction, then you can take benefits of that as well.
Note: If you have opted to pay tax under the alternative tax regime under section 115BAC, tax deduction under section 80E will not be available. It will be available only if you have opted for old tax regime.
How to claim tax deductions under section 80E?
While filing your income tax return, mention the exact amount of interest on the education loan under section 80E as stated in the certificate that you paid during the financial year for which you are preparing the tax return.
You need not attach any document while filing your income tax return in order to claim tax deduction under section 80E.
If you are a salaried individual, then to claim lower deduction of tax (TDS), you need to inform the amount of interest to be paid for the whole financial year at the beginning of the financial year in a declaration.
Based on the declaration, tax deducted (TDS) out of your salary income will be calculated by your employer. In case you missed it or your employer did not accept your declaration, then you can claim tax deduction under section 80E while filing your income tax return to claim refund of excess tax deduction by your employer.
Frequently asked questions on tax deduction under section 80E
What are the documents required to claim a tax deduction under Section 80E?
Taxpayers who are taking benefits of section 80E are required to provide a certificate from the financial institution or charitable institution from which loan is taken.
The certificate should mention the interest and principal components paid during the financial year separately.
You are not required to attach any documents while filing the income tax return. However you should keep following documents with you in case required to be submitted to the assessing officer in case of scrutiny;
- Sanction letter
- Interest certificates
- Repayment statements
For how long can you claim tax deduction under section 80E for an education loan?
You can start taking tax deduction under section 80E from the year when you started repaying the education loan up to 8 years or until the interest is fully repaid, whichever happens earlier.
For example, if you have taken an education loan in the financial year 2022-23 and started paying interest in the same year, then you can take benefits of section 80E tax deductions up to financial year 2029-30. In case you have completely paid your education loan in 5 years, then you can claim tax deduction up to the financial year 2026-27 (assessment year 2027-28).
Can I avail tax deduction u/s 80E if the education loan is taken for higher studies at a foreign university?
Yes, benefits of section 80E tax deduction can be taken for foreign education loans also.
However, all other conditions of this section should be satisfied.
For instance, the taxpayer must be an Indian citizen and have taken an education loan from a recognized financial institution or approved charitable institution.
Please note, the education loan must be taken from an approved Indian Financial institution or charitable institution or Indian Bank. If you have taken a loan from any foreign institution, then benefits of section 80E are not available.
Can loans taken from employers or friends be considered for section 80E tax deduction?
No, You are not allowed to claim tax deduction under section 80E if the education loan is from your employer or friend.
The education loan must be taken from an Indian bank, financial institution or an approved charitable institution.
Can section 80E tax benefits be taken along with other sections?
Yes, tax deduction under section 80E is available over and above other deductions as in Chapter VI-A of the Income tax act, 1961. For instance, along with section 80E benefits, you can claim 1,50,000 tax deduction under section 80C based on your eligibility.
Is section 80E applicable to Hindu Undivided Families (HUFs), Partnership Firms and Company?
No, It’s applicable to Individual taxpayers. HUFs, Firms and companies can not take benefits under this section.
