Section 80E: Education Loan Tax Benefits

Education is one such investment which enables you to reap lifetime benefits. However, the rising education costs in our country and overseas are worrisome. The Income Tax department offers various tax deductions on education loans to ease your financial burden. 

If you have availed of an education loan, you can get tax benefits under both Section 80E and 80C of the IT Act. However, you would only be eligible for deductions if you follow the old tax regime. The new tax regime has increased the taxable income slabs but removed most of the deductions and exemptions that were previously available under the old tax regime. Let's discuss Section 80E in detail. 

What is Section 80E of the Income Tax Act?

Section 80E of the Income Tax Act, 1961, deals with the terms and conditions of availing income tax deductions if you have an ongoing education loan. A set of criteria is given under this section mentioning who is eligible to get the deductions and under what conditions. Let's discuss them in detail.

Conditions for availing tax benefits on education loans

The conditions laid out for availing tax deductions under Section 80E of the Income Tax Act are mentioned below: 

Maximum Deduction Amount

There is no maximum deduction amount that can be claimed against an education loan according to Section 80 E of income tax. The interest you pay on an education loan is entirely tax-free, as you can claim tax deductions against it. However, this is applicable only for the interest amount actually paid,and not the accrued interest.

Lenders who can offer Loan

According to Section 80E of income tax, you must request an education loan from reputable financial institutions such as a bank, an NBFC, or a charitable organisation to take advantage of 80E deductions.

Time Limit for Claiming Deductions

As mentioned above, you can claim deductions under Section 80E for up to eight years. The tenure starts from the year you start paying back the loan's interest or until all the interest has been paid off, whichever is earlier. 

Education loans eligible for tax benefit

The loan must only be availed to pursue higher education in India or overseas in order to qualify for tax deductions under Section 80E. According to the aforementioned clause of the IT Act, any education loan availed for any other reason will not be eligible for tax benefits.

Any full-time course that follows after completing the senior secondary exam or its equivalent is known as "higher studies". Loans for such courses or graduate or postgraduate degrees in engineering, medicine, management, or any occupational course, are also eligible. 

Individuals who are eligible for deductions

A person borrowing an education loan from financial organisations is eligible for this tax deduction. However, tax deduction on borrowed amounts from friends, family, and other acquaintances is not permitted. 

To be eligible for tax benefits, you must borrow money for your own higher education, the education of your partner or spouse, your dependent children, or a student over whom you have legal custody.

If your parents split the EMI payments, they can claim the portion of the EMI that they spend in interest, and you can claim the remaining portion.

Final word

Due to the benefits of an education loan, most students rely on it while pursuing higher education.Your effective cost on education loan gets reduced because of the deduction available u/s 80E.. 

Now students can pursue their MBA, MBBS, engineering, and many other graduate and postgraduate courses from their dream institutes without going through tremendous financial burden.

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