5 Things You Should Know about Tax Exemption from an Education Loan

Tax Exemption from an Education Loan

For societal progress and personal development, education plays an important role. It is actually a big-time investment in which people invest with the motive of succeeding in the near future. To pursue higher education either in India or to study abroad, a large amount of money is required to serve the purpose. Education Loan is the most easiest and accessible method to pursue higher education. An education loan to study abroad can help you out in pursuing a quality education at your dream university. According to section 80E of the Income Tax Act 1961, you are eligible for tax exemption under some terms and conditions. 

Understanding Section 80E

Section 80E is basically an advantage provided by the government. It is a relief providing benefits for repayment of an education loan. An individual can claim tax exemption under section 80E of the Income Tax Act of India 1961. The exemption of tax is provided on the repayment of interest in an education loan. 

After getting an exemption from tax from an education loan, the amount of interest can be deducted from the taxpayer’s taxable income. Also note that, under section 80E, no tax exemption is provided on the principal amount of an education loan. The deductions can be claimed when an individual starts paying the amount of interest. It can be claimed only for 8 years.

Any Indian citizen who is availing education loan can avail of the benefit of tax exemption on the amount of interest of an educational loan. The legal guardian is also eligible for tax exemption under section 80E. If the educational loan is taken from any unregistered financial institution, then no exemption of tax will be provided. Also, there are chances of fraud. So, always be aware and do your research before availing of an education loan from any of the registered financial institutions. There will be no exemption on an educational loan availed from any non-approved or non-registered financial institution or foreign institution or relatives or friends. 

Also Read: Education Loans for Abroad Studies in 2023

Eligibility

An individual needs to fulfil the following conditions to be eligible for the tax exemption in an education loan.

  • Tax exemptions are only applicable to individuals.
  • In the case of a joint education loan, no exemption can be claimed.
  • Tax exemption can be claimed either by the student or by the parent.
  • Legal guardian or spouse can also claim tax exemption.
  • Tax exemption can be claimed only if an education loan is taken for higher education.
  • The availed loan should be from an authorized and registered financial institution.
  • Companies or Undivided Hindu Families can not claim exemption from tax in an education loan
  • Only the taxpayer who has applied for the loan can claim exemption from tax in an educational loan.
  • In the case of study abroad, special deductions can be availed in an education loan.
  • The deduction can be claimed up to a maximum of 8 years from the initial year i.e., from the time of interest payment.

Also Read: Expenses Covered in Education Loan

Deductions under Section 80E

There are several deductions and to get an exemption from these deductions, Section 80E comes with a solution. It aims at encouraging people to avail of education loans with the benefit of tax exemption. Under Section 80E of the Income Tax Act of India 1961, the deductions can be claimed. In sub-section(1) of Section 80E, the total amount of income or the amount of interest paid by an individual for an education loan is calculated. 

The total amount of interest which is part of EMI is the deductible amount. Also, there is no limit on the amount of deduction. The total amount of interest paid is allowed as a deduction while there will be no deduction or exemption from the principal amount. 

A certificate from the financial institution is however required to prove the amount of interest paid in a financial year. The certificate should be segregated according to the amount of principal and interest. The deduction is available only for 8 years maximum or till the time interest is paid, whichever is earlier. 

The deduction can be claimed from the time of payment of interest to 8 years or until the interest is fully paid, whichever is earlier. But if the amount of interest is not fully paid in 8 years, then no tax deduction will be provided after 8 years whatever the case will be. 

The deduction applies to all the courses pursued after the 12th standard from any government-approved college, university, or institution. Also, note that the parents availing loans to send their children to study abroad can also avail of benefits under section 80E. 

Also Read: Education Loan for Abroad Studies by Indian Government

Documents Required to Claim the Deduction 

An individual claiming a deduction needs to submit a certificate from the financial institution from which the loan was availed. This certificate should be from a registered financial institution or from an approved charitable institution. The certificate should have a detailed report segregating the principal amount and the amount of interest paid. 

Claiming the Deduction

While claiming the deduction and filing your income tax return, the following details should be handy.

  • The certificate obtained from a financial institution.
  • Details of the interest paid during the financial year.
  • Details of the lender.
  • The time period of the loan.

Also Read: Education Loan without Collateral

FAQs

What is section 80E?

Under section 80E an individual can claim loan exemption in an educational loan.

What is the maximum time limit to claim tax exemption in an educational loan?

Tax exemption in an education loan can be claimed for a maximum of 8 years.

Which part of an educational loan is exempted from tax under section 80E?

Only the interest amount of an educational loan is exempted from tax under section 80E. The principal amount of an education loan is not exempted from tax under section 80E.

According to the records of the Ministry of Finance, over 4.60 lakh students availed of education loans to study abroad in the last 10 years. India has the advantage of the largest youth population in the world. The people of India understand the value of higher education for their children, and that is the reason why the number of applications and admissions to higher education increased slightly in recent years. 

Also, the spending on education has increased slightly with the second-highest share of wallets for middle-class families in the country.

 These benefits come to make higher education easy for the students. Just be aware of the updates and all the amendments related to the education loan, and live the dream of studying in your dream country. 

To know more about the loan application process, and the best bank accounts for students or international money transfers, subscribe to Fly. Finance or reach out to our experts to help ease your study abroad experience.

About Farina Khan

Farina Khan is a journalist by profession and a writer by passion. She carries over a decade of experience in Journalism and Mass Communication and worked with some renowned media organisations like Doordarshan and Zee Media. She performed numerous roles during her work tenure including reporting, anchoring, and heading output as well. Her passion for writing, combined with dedication in delivering high-quality content, drives her to excel in the dynamic field of content writing. From thought-provoking articles to SEO-friendly blog posts, or engaging website content, She is here to bring the ideas to life through words.

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