Maximise Tax Benefits of Your Education Loan | 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.

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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