With tuition fees, living expenses, and other associated costs related to pursuing higher education rising steadily, education loans have become a practical funding solution. To ease the financial load further, the Indian government provides education loan tax benefits on education loan interest through Section 80E of the Income Tax Act, 1961. This section is designed to offer some relief during the repayment phase of an education loan.
What is Section 80E?
Section 80E is a provision under Chapter VI-A of the Income Tax Act. Its objective is to promote higher education by reducing the burden of interest payments through tax savings on education loans. It allows individual taxpayers to claim a deduction on the interest paid on an education loan, making it easier to manage loan repayments without additional financial strain.
Eligibility Criteria
To claim education loan tax benefits under Section 80E, the taxpayer must meet the following eligibility conditions:
- Only individual taxpayers can claim the education loan tax deduction. Hindu Undivided Families (HUFs) or companies are not eligible.
- The education loan must be taken to pursue higher education for any of the following:
- Self
- Spouse
- Children
- A student for whom the individual is a legal guardian
This makes the provision particularly useful for parents or guardians who take loans to fund a student’s education.
Loan Source Requirements
Not all loans qualify for the education loan tax deduction under Section 80E. To be eligible:
- The loan must be obtained from a financial institution or an approved charitable trust.
- Loans taken from friends, family members, or unregistered institutions are not eligible for deductions under this section.
This ensures that only formal and traceable financial arrangements qualify for tax exemption on education loan.
What is Deductible Under 80E?
One of the most important aspects of Section 80E is that only the interest portion of the EMI is deductible. The repayment of the principal amount is not eligible for education loan tax exemption. However, there is no upper limit on the interest amount that can be claimed as a deduction under Section 80E. The taxpayer can claim the actual interest paid during the financial year.
Time Period for Deduction
The benefit under Section 80E is not unlimited in duration. It is structured as follows:
- The deduction can be claimed from the year you start repaying the loan.
- You can continue claiming tax exemption on education loan for a maximum of 8 consecutive financial years, or until the entire interest is paid off, whichever is earlier.
Even if your loan repayment continues beyond eight years, you will not be able to claim the deduction after the 8-year window ends.
How to Claim Tax Benefits Under Section 80E
Claiming tax benefits under Section 80E is a straightforward process. Here’s how you can do it:
- Obtain an Interest Certificate: Request an interest repayment certificate from your education loan provider. This document separates the interest from the principal.
- File Income Tax Returns (ITR): While e-filing your ITR, mention the interest amount under the “Deductions under Chapter VI-A” section.
- Maintain Documentation: Always keep copies of the interest certificate and loan documents for record and verification.
Key Points to Remember
While claiming education loan income tax benefit, keep the following points in mind:
- Only individual taxpayers are allowed this deduction, not HUFs, companies, or firms.
- The loan must be from an approved source, not informal lenders or personal arrangements.
- This deduction can be claimed along with other tax-saving deductions like Section 80C (for tuition fees or LIC premiums).
These checks ensure that only genuine education loans qualify for tax relief.
Conclusion
Section 80E provides tax relief on the interest paid towards education loans, helping reduce the overall financial impact of higher education. With no upper limit on the deductible interest and a defined claim period, it serves as a useful provision for individuals repaying loans for higher studies. Those planning to study abroad can explore overseas education loan options from Credila, which offer flexible repayment plans. This can support both the funding needs and the potential tax benefits of student loans under Section 80E.
Disclaimer:
This information regarding Section 80E is for informational purposes only and should not be considered professional tax advice. Please consult a tax advisor for personalised guidance.
T&C apply. Credila Financial Services Limited (Formerly known as HDFC Credila Financial Services Limited). The education loan facility provided by Credila Financial Services Limited will be at the sole discretion of the Company and within the Company's prescribed credit and underwriting norms/guidelines prevailing at the time of processing and disbursing the education loan. The Company maintains the right to change the interest rate at any time and at its sole discretion, without prior notice.
