Tax Benefits for Education Loan Under Section 80E

Acquiring new skills or upgrading the existing skillset is the first step towards Professional Success and Education Loan is what helps individuals and students pave way to pursue their dream career. If an individual has taken education loan and is repaying it then he can claim a deduction on the Repayment of interest on the Education loan under section 80E of the Income Tax Act.

However this deduction can only be claimed by an individual who has taken an education loan for higher education of himself or their spouse or children or legal ward i.e. the person of whom he is the legal guardian. This deduction cannot be claimed by Hindu Undivided Family.

Lets understand how tax benefits for education loan can be claimed under section 80E of Income Tax Act:

1. How much Deduction can be claimed for Education Loan?

Section 80E only enables the Repayment of interest not repayment of the principal amount of education loan. Therefore, at the time of filing income tax returns, the amount of interest that is repaid is claimed as a deduction.

It is important to note that this deduction U/S 80E does not carry any cap and is over and above the deduction U/S 80C in which an individual can claim ₹1,50,000 exemption under various heads and investment instruments.

2. Purpose of taking the Education Loan

U/S 80E the deduction is allowed only if the loan was taken to pursue Higher Education (i.e. any regular course that is enrolled into after clearing the Senior Secondary Exam) or any vocational course (after 1st April 2009) of the person himself or spouse or children or legal ward within India as well as outside India.

3. Loan has to be taken from Registered Financial Institutions

Deduction U/S 80E cannot be claimed on Loans taken from friends or family or from financial institutions outside India. It is very important that the loan is taken from a Registered Financial institution or Charitable institution in India, only then U/S 80 E the deduction can be claimed.

4. Period of Deduction

Deduction U/S 80E can be claimed immediately starting from the year when the individual started paying the interest on the loan in addition to 7 subsequent years i.e. a total period of 8 years or till the time the individual repays the interest in full, whichever is earlier.