Student Loan Tax Deduction: Calculator, Income Limit, Section 80E

Student Loan Tax Deduction
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With a higher demand to study abroad and for pursuing higher education abroad, sending students to study abroad is becoming a costly affair. It’s not easy or affordable for many families, therefore they decide to take education loans to help them finance the education of their children. Education loan helps students relieve the financial burden of studying abroad. But more than that, there’s another factor of education loans that greatly benefits students. What is it? Well, if you are someone who has taken an education loan and is repaying it, then you claim a student loan tax deduction under Section 80E of the Income Tax Act. You can save income tax with the tax benefits of an education loan. Read this blog to know how. 

Student Loan Tax Deduction under Section 80E

The student loan tax education under section 80E acts as an encouraging unit for borrowers to avail of an education loan. This is because there is a tax benefit on repayment of the student loan. So how it works is that the interest paid on the education loan, which is a part or component of the EMI, can be allowed as a deduction under section 80E of the Income Tax Act. You can avail of this deduction for 8 years maximum, or whenever you are able to repay the interest. Whichever is earlier works. 

Please note that for you to claim the deduction, you are to submit and present a certificate (from the institution) that clearly shows the amount paid and its division as interest paid and the principal amount.

Also Read: Indian Bank Abroad Education Loan

Eligibility Criteria 

What are the eligibility criteria for claiming the student loan tax deduction? Mentioned below are the primary criteria that you need to keep in mind. 

  1. Only those can claim the deduction who are replaying the education loan. 
  2. The claims for student loan tax deductions can only be made on the interest paid. 
  3. The deductions cannot be claimed after 8 years. 
  4. The student loan tax deduction provision is a tax benefit which can only be availed if the loan is taken from a credible and approved institution, and not from any family members or informal party. 

Tax Exemption 

The education loan interest can be deducted from the income of the taxpayer before arriving at the taxable amount. But, for Section 80E, there is no limit up to which the deduction can be claimed. It completely depends on whatever amount was paid as interest in a financial year. What this means is that irrespective of the actual amount, what you have paid as interest in a financial year can be claimed as a deduction before calculating the taxable income.

For Example 

Gross Taxable Income = INR 7 lakh

Interest on Education Loan = INR 2 lakh 

Then, 

Total Taxable Income = INR 5 lakh 

Also Read: Student Loan Debt: Relief, Application, Calculator, Plan

Period of Student Loan Tax Deduction

As per the tax authorities, a moratorium period of (up to) one year is provided for the start of loan repayment from the date of course completion. Student loan tax deduction can be effectively claimed up to 8 years from the year of commencement of loan repayment. 

So, what this means is that if you repaid the loan within 6 years then the tax deduction can be applied for six years only even though you are eligible for claiming the deductions for two more years. Also, it doesn’t mean that you cannot repay the loan after eight years. It’s just that you will not be able to avail of the student loan tax deduction benefit after a period of 8 years. 

Calculators for Student Loan Tax Deduction

Simply, how a student loan tax deduction is calculated by considering the interest paid on the education loan as a deduction from the total income before tax calculation. 

There are different banks in India that provide calculators on their websites for this. 

Image Source: Axis Bank. 
Image Source: ICICI Bank 
  • You can check out the ICICI bank full calculator here

Also Read: NBFC Education Loan For Studying Abroad

FAQs

What is the limit of 80E exemption?

There is no limit for Section 80E exemption up to which a deduction can be claimed. 

Who is eligible for Section 80E?

An Indian citizen who takes an education loan and repays it is eligible for Section 80E. 

What is Section 80E deduction?

Section 80E of the Income Tax Act allows the deduction of interest paid on education loans that you can claim if the loan is taken from an approved charitable institution or financial institution. 

That was about Student Loan Tax Deduction and its intricacies. Learn more about finance-related queries on our Fly Finance blog. 

About Sanya Chhabra

A hermit who prefers to stand true to her values of kindness, inclusivity; and reflects the same in her writing. With a degree in literature and multimedia journalism, she's on a forever pursuit to improve. Additionally, she's open to inputs that are not unsolicited. Welcome to her professional writing space about finance, hope you enjoy your time.

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