Financing money for higher studies is a tedious job. As we all know, getting an education loan or student loan helps ease the financing process, but did you know you can get a deduction of the interest payments?
Read the article to learn more about the tax benefits in India, the 80C deduction list, information on tax-saving options, along with answers to popular questions like ‘How to get tax benefits in India?’ and more.
Overview
The table below summarises some key details about section 80E of the Income Tax Act that one should know.
| Name of the section | Section 80E of the Income Tax Act |
|---|
| Objective | It is a tax deduction on education loans/student loans |
| Deduction on | Interest in EMIs |
| Principal deduction | None |
| Eligibility criteria | Only for people not HUFs |
| The loan to be taken for | Children, spouse, legal ward, or self |
What Is Section 80E Of The Income Tax Act?
Section 80E of the Income Tax Act is a tax deduction on education loans/student loans. It is a tax incentive given to people pursuing higher studies with the help of an education loan. This helps in the deduction of the interest amount paid on the loan and not on the principal amount.
The taxpayers will only have to focus on paying the principal amount back and not worry about the interest payment.
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Who Can Claim This Deduction?
The below-mentioned points showcase detailed information about the ones who can claim this deduction:
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Only an individual taxpayer can claim the deduction, i.e., HUF or other kinds of taxpayers cannot claim the deduction.
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The individual's spouse or children, or a student for whom the taxpayer is a legal guardian.
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Parents can claim this deduction for their children's higher studies.
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The taxpayer must be under the old tax regime to claim the deduction on the education loan, which is different from other provisions like HUF tax benefits for salaried employees that follow separate rules.
Income Tax Deductions Under Section 80E
To claim income tax deductions under Section 80E, one must take a loan from any bank, financial institution or any approved charitable institution. Loans taken from family or friends will not qualify for the deduction.
The person taking the loan must obtain a certificate from the bank, financial institution, or approved charitable organisation from which the loan was taken. This certificate should show in detail the principal amount and the interest amount of the education loan for the financial year. Please ensure to make all the calculations using the income tax calculator for accurate numbers.
Where Can Education Loans Be Taken?
You can only claim a deduction under Section 80E of the Income Tax Act if the education loan is taken from one of the following sources:
What Is The Purpose Of An Education Loan?
To avail of this tax deduction as per Section 80E of the Income Tax Act, the mentioned loan has to be taken for pursuing higher education only. This includes:
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Education received after exams of senior secondary curriculum (12th standard).
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Both the routine and vocational courses, whether one wants to study in India or any foreign country.
Section 80E Tax Exemption Limits
The below-mentioned points showcase the detailed information about the Section 80E tax exemption limits: -
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Interest Deduction: When it comes to education loans, only the amount of interest is allowed as a deduction.
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No Limit: In fact, there is no maximum limitation regarding the amount of interest that you can claim in the one fiscal year of the company.
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Example: Where you get ₹6.7 lakh and pay ₹2 lakh in interest, you can be taxed on ₹4.7 lakh.
What Are The Eligibility For Claiming 80E Deduction?
To qualify or to be eligible for claiming the deduction of Section 80E of the Income Tax Act, the following points need to be checked:
Interest-only Deduction
- Interest on education loans only is allowed as a deduction and not the actual loan amount.
Eligible Borrowers
- This deduction is only available to individuals. Here, it is also incumbent to note that Hindu Undivided Families (HUFs) and companies cannot invest in the FDI.
Approved Lenders
- The loan must be from any accredited bank, financial house, or approved charitable organisation. Getting a loan from friends or relatives does not count.
Higher Education
- The loan has to be availed for educational purposes, and the education has to be after the 12th standard.
Maximum Deduction Period
- This one you can use against your income for up to 8 years, or until the specific loan itself has been paid off fully, whichever comes first. Please calculate using the income tax calculator for accurate numbers.
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Documents Required To Claim Deduction Under Section 80E
The documents necessary for claiming a deduction under Section 80E are some sort of certificate, and to claim the tax deduction, you need the following documents:
- Certificate from the Bank/Financial Institution/Charity: This certificate must indicate the principal and interest parts of the education loan paid in the financial year.
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Period Of Deduction
The deduction commences in the year that you start paying for the loan. The maximum duration of this is the amount that you can claim for a maximum of 8 years. However, if the loan is repaid before 8 years, the individual is only allowed to claim the deduction for the years in which repayment was made.
Example: If you refinance the loan and repay it in the next 5 years, you are allowed the deductions for 5 years only.
Education Loan Interest Deduction Under Section 80E (Illustrative Example):
The interest amount of the EMI is only eligible for deduction, not the principal amount. There is no upper limit that can be claimed under Section 80E.
Let us break it down in a simple manner.
| Financial Year | Interest Paid (₹) | Deduction Claimed (₹) |
|---|
| 2023-24 | 50,000 | 50,000 |
| 2024-25 | 60,000 | 60,000 |
| 2025-26 | 70,000 | 70,000 |
| 2026-27 | 80,000 | 80,000 |
| 2027-28 | 90,000 | 90,000 |
| 2028-29 | 1,00,000 | 1,00,000 |
| 2029-30 | 1,10,000 | 1,10,000 |
| 2030-31 | 1,20,000 | 1,20,000 |
They can claim all the interest paid over the years up to the 8th year. After the 8th year, a person cannot claim any deductible.
Who Can Avail Of Tax Deduction Under Section 80E?
The following points showcase the details of the ones who can avail of the tax deduction under Section 80E of the Income Tax Act:
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Interest Deduction: When it comes to this type of loan, only the interest payment is permitted for the deduction, not the principal amount.
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Eligible Claimants: It can be claimed only by an individual and not by any HUF or any company.
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Loan from Approved Sources: The loan has to be taken from a bank, financial institution, or any registered charitable organisation. Loans from friends/relatives is not allowed.
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Purpose: The loan should be taken for financing higher education after writing the senior secondary exam.
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Maximum Duration: You can claim a deduction for up to eight years or until the loan is fully paid.
Tax Benefits 2025 Under Section 80E
One of the tax benefits examples is Section 80E, which is another section that provides an additional deduction over and above the deduction of ₹ 1,50,000 allowed under Section 80C. This is good for the taxpayers, especially those who fall under the provision of Section 80C and also have an education loan or student loan.
Why Some Individuals Prefer an 8-Year Repayment Period
The Reason Why Some People Prefer that the Repayment Period is 8 Years is as follows:
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Tax Benefits example: Most of them prefer the full 8-year tenure to claim the maximum deduction allowed under Section 80E.
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Investment Opportunity: Rather, it is used to pay back the loan only when he or she decides to make an early repayment of the surplus income to build wealth.
What Are The Advantages of Paying Off Loans Early?
The reason why it is wise to pay loans earlier is laid out below in detailed points for one's reference:
Freedom from Debt:
- Early repayment removes the pressure that is attached to EMIs and, in a way, lessens financial pressures.
Avoiding debt traps:
- The main reason is the possibility of avoiding falling into the so-called ‘debt trap’ when one has to pay back much more than he/she need or can afford.
Improved Credit Score:
- Repaying credit on time increases credit rating because, when looking for additional credit in the future, one will qualify easily for credit.
Reduced Interest Cost:
- Prepaying for the loans has the benefit of lowering the cash paid towards the interest charged in the long run.
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Key Considerations
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Extending the repayment horizon can bring in the optimum utilisation of the tax shield and yet may lead to a higher interest outgo.
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Early repayment guarantees financial liberty and enhances creditworthiness.
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Select a plan depending on financial readiness and aims. One can also check other provisions like tax benefits of marriage, which may have some additional benefits.
Terms and Conditions For Claiming Section 80E Deduction
To avail yourself of tax benefits in India under Section 80E of the Income Tax Act, keep these points in mind:
Eligibility:
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The loan has to have been taken for yourself or your biological or adopted children or ward if you are a legal guardian of the child.
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That loan is not availed of by the employer or relatives so they do not claim any deduction under Section 80E.
Who Can Claim:
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Section E also shows that only individuals can set off deductions.
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Firms, Hindu Undivided Families, a HUF, and companies are not allowable.
Applicable Period:
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Deduction of the amount is permitted only to the extent of the interest component of the loan.
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It also gives claim benefits for a maximum period of 8 years or until all the interest is met, whichever is earlier.
Conclusion
Section 80E of the Income Tax Act aims to make education more accessible to everyone. This benefits not just students but also anyone who wants to pursue higher education. This is the government’s one significant step taken to provide easy access to education loans and offer tax benefits 2025.
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