Tax Benefits on Education Loan: Section 80E | ICICI Bank

Higher education in a ‘dream college’ is often the most ardent wish of students and their parents. If one does not have adequate funds for paying the course fees, then an Education Loan can be very helpful. With this loan, you can easily and confidently pursue your dream degree in India or abroad. An Education Loan also helps you avail tax benefits that can further help you save money. Read on to know more about tax benefits of an Education Loan.

Understanding Section 80E of the Income Tax Act

To clearly understand Education Loan tax benefits in India, you need to know about Section 80E of the Income Tax Act, 1961.

Under this section, the interest paid on an Education Loan can be claimed as a deduction from your taxable income. This can be a big relief, especially when you are managing loan repayments during the early stages of your career. Also, remember that there is no cap on the amount you can claim as deduction under Section 80E. You can claim the entire interest paid on your Education Loan as a tax deduction. However, it only applies to the interest portion, not the principal repayment.

Who Can Avail This Tax Benefit?

Only the person who has availed the loan can claim the interest as deduction.  However, the loan can be taken for someone else. You can take an Education Loan for:

• Yourself

• Your spouse

• Your children

• A student over whom you have legal guardianship.

Note: If both parents contribute to the EMI of the loan, each can claim Education Loan interest deduction for their respective share of the interest paid.

How Long Can You Claim Education Loan Tax Benefits?

The deduction can be claimed for a maximum of 8 years, starting from the year you begin repaying the loan interest. If your loan repayment is completed in less than 8 years, the benefit ends sooner. This cap on the period to claim tax benefits encourages borrowers to repay the loan early while still enjoying tax perks.

Documents Needed to Claim the Deduction

When filing your tax returns, keep these documents handy:

• The loan sanction letter from the bank

• The interest certificate from the bank (in which the interest paid is mentioned)

• Proof of higher education enrolment

• PAN Card and Aadhaar Card of the applicant and co-applicant.

Remember to attach copies of these documents while filing your tax returns to avoid delays and rejection of your claim for the Education Loan income tax rebate.

New Tax Regime vs Old Tax Regime

Under the new tax regime, most exemptions and deductions (including that under Section 80E) are not allowed. If you wish to claim Education Loan interest deduction, you must opt for the old tax regime. So, if you are repaying an Education Loan, calculate your tax liability under both regimes and choose the one that gives maximum savings.

How to Maximise Education Loan Tax Benefits

Below are some tips to maximise your Education Loan tax benefits:

• Start Repaying Interest Early: The tax benefit under Section 80E begins only when you start repaying the loan interest. Don’t wait for the moratorium (grace) period to end. Begin paying interest during your study period to claim deductions early and maximise benefits for up to 8 years.

• Choose the Old Tax Regime: If you opt for the new tax regime, you cannot claim the Education Loan tax deduction. So, choose the old tax regime while filing your ITR to take advantage of Section 80E benefits on your Education Loan interest payments, provided overall savings are higher in the old tax regime.

• Maintain Records and Interest Certificates: Always collect and store your annual interest certificate from the bank. This document is essential while filing tax returns and helps you prove that you have paid the Education Loan interest that you have claimed as a deduction.

• Claim as a Co-Borrower: If parents or spouse are co-applicants and pay part of the EMI, they too can claim their share of the interest as a tax deduction. This can maximise total family tax savings.

FAQs

1. Is Section 80E part of Section 80C?

No, Section 80E is a separate provision. Section 80E specifically provides Education Loan tax deduction on the interest paid, while Section 80C covers education-related tuition costs.

2. What is the maximum limit for tax deduction under Section 80E?

There’s no upper limit on the Education Loan tax benefit you can claim under Section 80E. You can claim the entire amount paid as interest on the Education Loan during the financial year as a tax deduction. Principal repayment isn’t eligible for this deduction.

3. Can parents claim tax benefits under Section 80E?

Yes, parents can claim Education Loan tax deduction under Section 80E if they have taken the loan for their child’s higher education and are repaying it. The deduction is allowed for the person who actually pays the loan interest, regardless of whether the student or the parent took the loan.

4. Can I claim deductions under both Section 80C and Section 80E?

Yes, you can claim tax deductions under both Section 80C and Section 80E, provided you have opted for the old tax regime. While Section 80C covers education-related tuition costs and other investment schemes such as PPF and ELSS, Section 80E offers Education Loan tax benefits for interest payments of Education Loans. Claiming deductions under both sections helps reduce overall tax liability effectively.

5. Which courses are eligible for tax benefits under Section 80E?

The tax deduction for Education Loan interest applies to higher studies in India or abroad, including graduate and postgraduate courses in engineering, medicine, management, applied sciences and other recognised fields.

6. Who can claim tax benefits on an Education Loan under Section 80E?

The Education Loan tax benefit can be claimed by the person who pays the interest on the loan, whether the borrower is a parent, spouse or guardian. The Education Loan interest tax deduction is valid for Education Loans taken for self, children or dependents.

7. Who is eligible to claim Education Loan tax benefits under Section 80E?

Indian national filing their tax, who have taken an Education Loan for higher studies for themselves or specified relatives can claim tax benefits under Section 80E.

8. What is the maximum tax benefit I can claim on Education Loan interest under Section 80E?

There is no upper limit on interest deduction under Section 80E, subject to actual interest paid during the eligible period.

9. Is Section 80E applicable under the new tax regime?

Education Loan tax deduction under Section 80E is not available if the new tax regime is opted for.

10. What documents are required to claim Education Loan tax deduction?

Loan interest certificate issued by the bank is required to claim Education Loan tax deduction.

11. Can I claim tax deduction on the full interest paid on an Education Loan?

Yes. Under Section 80E, borrowers can claim an Education Loan tax deduction on 100% of the interest component paid. This Education Loan income tax benefit applies to interest payments during the eligible deduction period.

Conclusion

An Education Loan is more than just a way to fund your dreams; it’s also a smart tax-saving tool. By understanding the provisions under Section 80E and making strategic repayment choices, you can significantly reduce your tax burden. Whether you are a student or a parent paying for your child’s education, stay informed, file tax returns diligently and make the most of the tax benefits of an Education Loan.

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