Tax Exemption on Interest Paid for Education Loan under Section 80E
Have you availed an education loan? Do you know that this credit form is tax deductible under Sec 80E of Income Tax Act?
Education is the basic right of every human being. However, coping with the fee structure can be strenuous for many.
If you have liabilities such as tax payment and education loan repayments, the deduction under section 80E can help you enhance savings.
How? Keep scrolling to learn about available exemptions and how to claim them
What Is Section 80E?
According to a 2021 report, nearly 94% of Indian students wish to study abroad. This demand can be attributed to career growth needs, feasible immigration policies, professional courses, etc.
However, to support these dreams, parents usually depend on high-value loan forms like education loans.
If you have availed an education loan to bear the expenses of studying abroad or locally, then understanding Sec 80E of Income Tax Act becomes crucial.
This Act helps you save significantly on income taxes with deductions on interest repayment against education loans.
To gain deduction on the interest component under this Section, you have to avail loan from an authorised charitable or financial institution as defined under Banking Regulation Act, 1949. No benefit is allowed on repayment of the principal amount of the loan.
Individuals can also claim this education loan repayment tax benefit if acquired credit is used to back up the higher studies of a spouse, children or self.
Note that there is no specified 80E deduction limit although you can claim deductions under section 80E for a maximum of 8 assessment years starting from the year the assessee starts repaying the loan. However, if you foreclose the loan account, this income tax deduction will be available for a reduced period for which the loan was active.
Read the updated terms and conditions when applying for a tax deduction. Additionally, you should check the amount available as a deduction.
What Is the Amount Deductible Under Section 80E?
There is no specified limit on education loan deduction under section 80E. Therefore, the tax benefits on interest payment aren’t affected by the principal amount and interest rate levied by lending institutions.
Here is a table to explain how Section 80E calculation for deduction works. This amount can vary according to income and other particulars.
| Particulars | Amount |
|---|---|
| Income of an individual | ₹ 5,00,000 |
| Subtracted- Interest repaid (80E deduction) | ₹ 1,00,000 |
| Net Taxable Income | ₹ 4,00,000 |
The interest repaid on an education loan is subtracted from one’s total gross income. This gives the result of reduced taxable income and hence reduced income tax.
However, to claim this benefit, you need to fulfil certain 80E eligibility parameters.
Who Is Eligible to Claim Tax Deductions Under Section 80E?
The eligibility criteria to gain tax deductions under Sec 80E of Income Tax Act, 1961 are as follows -
Only individuals can claim this tax deduction. However one can also claim deduction for education loan
for his / her spouse,
for his child’s
for a student for whom the individual is a legal guardian.
The deduction under Sec 80E of Income Tax Act doesn’t apply to Hindu Undivided Family (HUF) taxpayers or companies.
Individuals availing education loan and paying interest thereon can claim 80E deduction if his income comes under the taxable bracket.
Taxpayers can claim this deduction if a loan is taken to finance higher education from any financial institution or any approved charitable institution for the purpose.
Apart from meeting the eligibility parameters, individuals need to submit certain documents to substantiate their authentication.
What Are the Documents Required to Claim Deductions Under Section 80E?
An individual who is eligible for 80E deductions has to submit the following papers.
- Loan sanction letter from a financial institution.
- Certificate from your lending bank / financial institution stating both the segregated principal and interest repayment amount.
- Repayment statement of an education loan from a lending institution. This statement should show the principal amount, interest obligations and EMI repayments.
- A salaried individual can submit bank statements to an employer to consider this deduction in Form 16.
To avail education loan income tax benefit, you need to keep a scanned and printout of the mentioned documents.
Nowadays, tax claims are filed online via the income tax portal. You can file the ITR by logging in with your PAN, password and captcha ID.
Usually, the form comes pre-filled with certain data. You have to select the applicable tax deduction. The redirected page gives the estimation of the available income tax exemption under section 80E.
In this regard, you can also use income tax calculators offered by financial institutions. This will help you evaluate your financial capability.
Moreover, you can calculate the amount payable as tax and the possible savings under the education loan tax benefit.
So, pay tax on time and keep a tab over the updated rules in the Income Tax portal to streamline the entire process.
Frequently Asked Questions
Can an individual studying in foreign universities get an education loan interest deduction under section 80E?
Yes, individuals can avail the deduction for foreign education. Technically, any Indian citizen who has availed an education loan from a lending institution can avail tax benefits under 80E. However, the applicant should be above 18 years and have authorised documents.
Can I gain income tax exemption under section 80E against a home loan?
No, you cannot claim tax deductions under Section 80E of the Income Tax Act against a home loan. Only applicants who avail an education loan for higher studies with valid proof are liable to gain the said tax benefits.