Understanding Education Loan Tax Benefits: What You Need to Know

Education is the foundation for your child’s future. It’s an investment that enables children to reap benefits for a lifetime. In recent years, the rising cost of higher studies has made parents struggle to afford the desired quality of education for their children. An education loan can help you to cover these costs. 

Along with funding the education cost, you can also claim tax benefits on educational loan repayment under Section 80E. This will make your child’s education more affordable. Understanding Section 80E deduction in detail will help you sort out the financing for your education and get maximum benefits.

Section 80E of the Income Tax Act, 1961, provides deductions for an educational loan from any recognised financial and charitable institution. However, the deduction under section 80E is only available if you opt for the old tax regime. 

Also, the tax benefits are only available on the interest payment of the loan, not on the principal part. Let’s understand Section 80E in detail:

You can deduct the interest paid on an education loan from your taxable income under Section 80E. The interest deduction is available for a maximum of 8 years, starting from the year the loan repayment begins. 

There is no limit up to which you can claim the deduction. You can claim the full interest amount paid in a year. This deduction is available to you regardless of your income level, making it beneficial no matter which income bracket you fall under. 

Tax deductions under 80E start from the first repayment year and last for up to 8 years. It will be available until the interest is fully repaid too, depending on whichever comes first. 

The first thing you need to claim an education loan income tax exemption under Section 80E is a certificate of loan disbursal from the lender. The other eligibility criteria are:

• Only the interest component of the loan is eligible for deduction, not the principal amount

• The deduction is available for loans taken for higher education, including for self, spouse, children, or a student for whom the taxpayer is a legal guardian

• Whoever is repaying the loan can claim the deduction

• The loan must be taken from a recognised financial institution or approved charitable institution for pursuing higher education at recognised institutes in India or abroad (You can check out the list of recognised institutions from the RBI website)

• The loan has to be for higher education

• It’s only available for those who have opted for the old tax regime

Knowing how many exemptions you can claim and what they are will make the process much easier and faster. 

You can claim your tax deduction under section 80E by following these steps:

1. Go to the official online portal of the Income Tax Department. 

2. Register yourself, if you are not already. 

3. Enter your credentials and log in. 

4. Find the right Income Tax Return form and file your return.  

5. Enter the required details and submit the form.  

6. E-Verify using a digital signature, Aadhaar OTP, or net banking. 

You can claim the exemption of your education loan under Section 80E right from the year you start repaying the loan. Utilising the time period and other factors will help you maximise the tax benefits. 

Use these few tips and make your financial strategy according to them for maximum benefits:

• The deduction is only applicable to the paid interest. So, try to repay the interest before the EMI starts.

• Section 80E allows deductions for up to 8 years from the first repayment year. So, try to structure your loan repayment to maximise deductions over this period.

• There’s no upper limit on the deduction amount, so claim it every financial year.

• Make sure you take the loan from a reputable financial institution to qualify for tax benefits.

Section 80E deductions are separate from other deductions like Section 80C. So, even if you claim up to ₹1.5 lakh under 80C, you can still use Section 80E benefits. Combining two sections will help you save the maximum amount. But this will only happen if you're following the old tax system.

By knowing how to claim taxes, you can use the benefits to make education affordable for your children. 

Section 80C allows parents or whoever is taking the loan to claim tax deductions of up to ₹1.5 lakh on tuition fees.

For example, Mr. Sharma has two children, one in college and the other in school. He pays ₹40,000 for his son's college tuition and ₹20,000 for his daughter's school tuition. His total expense for education is ₹60,000. He can claim a deduction under Section 80C to save a sizable amount on taxes. 

Other than Section 80E, you can also claim a deduction under Section 80C for tuition fees paid for full-time education. This claim is available for up to two children. 

This deduction applies to payments made to universities, colleges, schools, or other educational institutions in India. However, fees for development, donation,s or similar payments are not eligible for the deduction.

Make sure you are not making the following mistakes while creating a strategic plan for your future educational journey. 

To make sure that you get maximum tax relief as possible, avoid the following common mistakes taxpayers make when filing their returns:

• Missing out on claiming the amount every year during the 8-year repayment period as there’s no upper limit. 

• An 8-year tenure may seem sufficient. But you should make a strategy and spread the repayment amount accordingly to avoid a financial burden later. Higher EMIs can put an additional burden on your finances.

• Don’t ignore other sections after claiming a Section 80E deduction. Utilise section 80C as well to maximise your benefit. Ignoring other Sections can lead to lesser tax savings.

To maximise the tax benefits,  follow these tips:

• Explore and incorporate different deductions in your strategy to save more money

• Create a habit of tracking all your educational expenses to keep the records organised

• Repay your educational loan strategically

• Consult a tax professional who will provide you with a strategic plan based on your loan amount and expenses

• Under Section 80E, you can claim tax deductions on the interest component of your education loan for upto 8 years

• There’s no upper limit on the amount you can claim for tax exemption

• To qualify for tax benefits, the loan must be taken from an approved financial or charitable institution for higher education

• The deductions under Section 80E can only be claimed if you opt for the old tax system

1. What are the tax deductions available for education loans under Section 80E?

Section 80E deduction allows you to claim an exemption on the interest part of the loan amount. There is no limit to this deduction. 

For example, if Mr Roy pays ₹10,000 for his child’s education. He can apply for tax deductions from the Income Tax Department and save a good amount of money on its taxes.

2. How do I claim tax benefits for interest paid on education loans?

You can claim the tax benefits easily by applying for them through the Income Tax Department website. All you need to do is log in, enter your credentials, select the relevant option, and follow the onscreen instructions.

3. Can I claim tax exemptions for both principal and interest on education loans?

Section 80E only allows deduction on the interest part of the loan. 

4. What is the maximum deduction allowed under Section 80E for education loan interest?

There is no limit to the maximum amount you can claim. But, there is a limit for the time period, which is 8 years from the year the repayment starts. 

5. Can I claim education loan tax benefits for my child’s tuition fees?

Yes, you can claim tax deductions under Section 80C. Only your parents or legal guardian can claim the deduction. The limit of the deductions is ₹1.5 lakh per financial year. 

6. How do I maximise my education loan tax savings?

Besides Section 80E, you can claim a Section 80C deduction for tuition fees for up to two children. It applies to Indian educational institutions but excludes development fees, donations, and similar payments. This way, you can maximise your tax savings. 

7. What are the eligibility requirements for claiming Section 80E deductions?

To claim a tax deduction on an education loan under Section 80E:

• The lender’s loan disbursal certificate should be provided

• Only the person repaying the loan (you or your parents) can claim the deduction

• The loan must be from a financial or charitable institution, not family or relatives

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