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Section 80E Income Tax Deduction or Interest on Education Loan

Updated on: Jun 6th, 2024

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6 min read

An education loan helps you not only finance your higher studies but it can save you a lot of tax as well. If you have taken an education loan and are repaying the same, then the interest paid on that education loan is allowed as a deduction from the total income under Section 80E. 

However, the deduction is provided only for the interest part of the EMI. There is no tax benefit for the principal part of the EMI.

What is 80E education loan deduction?

80E education loan deduction is a tax incentive given to people who avail education loan for higher studies. This deduction is available only on the interest amount paid on the loan and not on the principal amount. Education Loan deduction can be claimed for a maximum of eight years, starting from the year in which interest repayment begins.

Who can claim education loan deduction?

Only an individual can claim deduction of the interest paid on education loan. It is not available to HUF or any other kind of taxpayer.  
The loan should be taken for the higher education of self, spouse or children or for a student for whom the individual is a legal guardian.  
Parents can easily claim this deduction for the loan taken for the higher studies of their children.

Further, the deduction can be claimed only by those who pay taxes under the old tax regime. 

Where can education loans be taken?

You will be eligible to claim a deduction under section 80E only if you take the loan from any bank/financial institution or any approved charitable institutions. Loans taken from friends or relatives for higher education do not qualify for this deduction.

Purpose of education loan

You will be eligible to claim an education loan deduction only if it is taken for pursuing higher studies. It does not matter whether such education loan is taken for higher studies in India or outside India.

Higher studies include all the fields of study pursued after passing the senior secondary examination or its equivalent exam. It includes both vocational as well as regular courses.

Section 80E tax exemption limits

The interest component of the education loan can be deducted from your income just as deductions under Section 80C and Section 80D are deducted before arriving at your total income to calculate the tax. However, there is no limit for Section 80E exemption up to which you can claim the deduction. Whatever amount you have paid as interest in a financial year can be claimed as a deduction, irrespective of the actual amount.

For instance, if your gross taxable income after other deductions is Rs 6.7 lakh and you repay Rs. 2,00,000 as the interest component of the education loan, your total income to calculate income would become Rs 4.7 lakh and taxed accordingly. 

Deduction under Section 80E

The deduction allowed is the total interest part of the EMI paid during the financial year. There is no limit on the maximum amount of deduction.  

You, however, need to obtain a certificate from your Bank. Such certificate should segregate the principal and the interest portion of the education loan paid by you during the financial year.  
The total interest paid will be allowed as a deduction. No Tax benefit is allowed for the principal repayment.

Period of deduction

The deduction for interest on loan starts from the year in which you start repaying the loan.  
It is available only for 8 years starting from the year in which you start repaying the loan or until the interest is fully repaid whichever is earlier.  

This means if the complete repayment of the loan is done in 5 years only, then tax deduction will be allowed for 5 years and not 8 years.  

It should also be noted that if your loan tenure exceeds 8 years, then you cannot claim a deduction for the interest paid beyond 8 years. So it is always advisable that an education loan is paid within eight years.

Eligibility for 80E deduction on education loan

  • Only the interest component of an educational loan can be claimed as deduction.
  • Only individuals can claim a deduction on education loan. Hindu undivided families and companies cannot claim 80E deduction.
  • 80E deduction can be claimed only if the education loan is taken from recognized financial institutions and charitable organisations and not from friends or relatives.
  • Loans must be taken for higher education. It can be taken either by a taxpayer or their spouse or children.
  • Deduction can be claimed for a maximum of 8 years.
  • It would be available to only those who have opted for the old tax regime.

Is it good to repay the education loan early?

Many borrowers choose to utilise the entire 8-year repayment period for their loans. Some do this because they prefer to invest their extra funds rather than pay off the loan. They strategically stretch out the repayment period to take advantage of the tax benefits available for education loans. This strategy works well for individuals who believe they can earn a higher return by investing their surplus instead of paying off the loan interest.

You may also consider adopting this approach if you possess the necessary skills to generate higher returns through investments compared to the loan interest rate. However, if your goal is to become debt-free and establish a strong track record of loan repayment, it is advisable to repay the loan as early as possible. This will help you maintain good financial standing and increase your chances of qualifying for a larger loan when purchasing a house.

Conclusion

The government has taken steps to promote accessibility to education by providing easy access to education loans and offering tax benefits on loan repayment. These measures aim to make education accessible to a wider population. Education loans are beneficial not only for students but also for individuals who are employed and aspire to pursue higher education after gaining some work experience.

Frequently Asked Questions

Can I claim a deduction for the principal as well as the interest amount of the EMI that I am paying for an education loan under 80E?

No, you cannot claim a deduction under section 80E for the principal amount of EMI. Deduction can be claimed only for the interest part of the EMI.

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

There is no limit on the maximum amount which is allowed as a deduction.

I want to avail higher education loan for my child who is going to study abroad. So can I get a deduction under 80E?

Yes, you can claim a deduction under section 80E even if your child is going abroad for higher education and it includes both vocational as well as regular courses.

Is Section 80E part of Section 80C?

No, Section 80C of the Income Tax Act provides a deduction in respect of the tuition fees paid for the education. However, section 80E of the Income Tax Act provides a deduction in respect of interest paid on educational loans taken for higher education.

What are the Education related tax benefits available under the Income Tax Act?

There are multiple provisions available under the Income Tax Act which provide tax benefits for Educational purposes. 

  • Section 80E provides for a deduction on the interest paid on the Education loan availed for higher studies (whether in India or abroad) & also there is no maximum limit within which you need to claim the deduction. 
  • Section 80C provides for a deduction up to Rs.1,50,000 on tuition fees paid by individual taxpayers.
  • If the taxpayer is earning Children's Education Allowance & Hostel allowance, the exemption can be claimed up to Rs.100 per month & Rs.300 per month respectively.

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Quick Summary

Education loan deduction under Section 80E allows individuals to claim tax benefits on interest paid for higher studies. It is applicable for those who have taken loans from recognized institutions. The deduction can only be claimed on the interest part of the EMI and not on the principal part. The deduction is available for up to 8 years, starting from the year in which interest repayment commences.

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