Section 80E of the Income Tax Act

Section 80E of the Income Tax Act provides valuable tax benefits for individuals repaying their education loans.

Education is the foundation of personal growth, social development and economic progress. To instil this importance, the Government has implemented tax provisions under Section 80E to make higher education accessible to a broader segment of the population.

Here is everything you need to know about Section 80E of the Income Tax Act: eligibility conditions, maximum limit, and more.

What is Section 80E of the Income Tax Act?

Section 80E of the Income Tax Act offers a tax deduction benefit on the interest amount paid on an education loan. It helps reduce your taxable income significantly.

• What qualifies for the Section 80E tax deduction? - Only the interest you pay on your education loan qualifies for a deduction under Section 80E. It is not applicable to the principal repayment component of your EMI.
• What should be the purpose of the education loan? - The education loan should be taken for the purpose of higher education to qualify for the Section 80E tax deduction.

There are a few other conditions that must be met to qualify for the educational loan under 80E, which we will discuss in the next sections.

Who Can Claim Tax Deductions Under Section 80E of Income Tax Act?

The deduction under Section 80E of the Income Tax Act is available exclusively to “Individual” taxpayers. Other types of taxpayers, including Hindu Undivided Families (HUFs), can claim this tax benefit.

You can claim the Section 80E tax deduction benefit for yourself, your spouse or your children. It can also be claimed for a student for whom you are the legal guardian.

So, parents paying interest on an education loan taken for their children can avail of this tax benefit.

Furthermore, you should have opted for the old tax regime to be eligible for the tax benefits applicable to education loans under 80E.

How Much Can I Claim Under Section 80E of the Income Tax Act?

There is no maximum limit to the deduction amount under Section 80E. You can claim the entire interest paid on your education loan as a deduction.

For instance, if you have paid ₹1,00,000 as the interest on your education loan, you can claim the entire ₹1,00,000 as the deduction.

How to Calculate the Tax Benefit Under Section 80E of the Income Tax Act?

The interest component of your education loan can be directly deducted from your income to determine your actual taxable income.

As there is no limit on the maximum amount that can be deducted under Section 80E, you can claim whatever amount you have paid as the interest for the financial year.  

For example, let us assume your gross annual income is ₹12,00,000, and you have made investments up to ₹1,50,000 that qualify for tax deductions under Section 80C. In addition, if you have paid ₹2,00,000 interest on an education loan, your total taxable income would be calculated as follows:

How Long Can I Claim Tax Deductions Under Section 80E of the Income Tax Act?

You can start claiming a tax deduction for the interest paid on an education loan as soon as you start repaying the loan. This benefit can be claimed for up to eight years or until you completely repay your loan, whichever comes first.

For instance, if you have completely repaid your education loan within four years, the deduction under Section 80E will be applicable for four years only.

If your loan repayment extends beyond eight years, you cannot benefit from the education loan Section 80E benefits for any period after that.

What Conditions Apply to Tax Deductions Under Section 80E of the Income Tax Act

• Amount of Tax Deduction under Section 80E - Under Section 80E, only the interest payments made on your education loan can be deducted. The principal repayment is not eligible for this benefit.
• Conditions for Higher Education Eligibility - The education loan can be taken for any course to be pursued after senior secondary examination or its equivalent. It can be a regular or vocational course, provided it is a full-time programme at a legally approved university or college. The institution may be located in India or abroad.
• Source of Education Loan - The education loan should have been taken from a recognised financial institution, such as a bank or a charitable organisation. It should be an Indian financial institution authorised by our Central Government. It does not apply to a loan taken from a friend or relative.
• Period of Deduction - The deduction on education loans under 80E is available for up to eight years or until you fully repay the interest, whichever occurs first.
• Taxpayer - The loan must be taken in the name of the individual taxpayer, who must be a resident Indian. Also, the taxpayer must have opted for the old tax regime for the income tax payment.

Documents Required to Claim Deduction Under Section 80E

To claim the Section 80E tax benefit, you need a certificate from the financial institution or charitable organisation that has provided the education loan. The certificate should clearly detail the interest and principal repayment components of your EMI for the education loan paid for the financial year.

Should You Consider Paying Off Education Loans Early?

When you take out an education loan, you have the option to benefit from tax deductions for up to eight years under Section 80E. Some individuals, although able to clear off their debt, may extend their loan repayment to take advantage of these tax benefits. It is a suitable approach for those who plan to invest the funds elsewhere to yield higher returns.

However, if you want to be debt-free sooner, you can consider early repayment of your education loan. It also helps you maintain a strong repayment history, which can be beneficial when applying for loans in the future. In addition, if you become debt-free, you can focus better on your financial future and make wise investment decisions.

Ultimately, the financial decision to clear off your debts early or stretch them through the repayment period should be your individual financial decision. It should depend on your financial situation and future objectives.

Wrapping Up

Section 80E of the Income Tax Act allows you to deduct the interest paid on your education loan to reduce your taxable income. It is applicable to education loans taken for higher education purposes in an educational institution within India or abroad.

There is no limit to the amount that you can deduct for the tax benefit under Section 80E. You can claim this tax deduction for up to eight years or until you have completely repaid your loan.

Furthermore, this deduction under Section 80E is applicable to individual taxpayers who have opted for the old tax regime.

This tax benefit is an opportunity to enhance your financial well-being while pursuing your educational and professional aspirations.

FAQs About Section 80E of the Income Tax Act

1. Does Section 80E come under Section 80C?

   No, Section 80E and Section 80C are two different tax provisions with distinct benefits. Refer to the next question to understand the meaning of each of these sections.

2. Can I claim both Section 80C and Section 80E?

   Yes, you can claim both Section 80C and Section 80E.

   Section 80C applies to tax deductions for certain expenses and savings and investments made in specified financial instruments. On the other hand, Section 80E applies to tax deductions for the interest amount paid on an education loan.

   Moreover, if you own a Reliance health insurance plan, you can also claim deductions under Section 80D for your annual premiums.

3. Is Section 80E applicable in the new tax regime?

   No, tax benefits under Section 80E can be claimed when opting for the old tax regime.

4. Can I claim a tax deduction for the EMI towards my education loan?

   You can claim a tax deduction for the interest component of your EMI paid on an education loan under Section 80E of the Income Tax Act. It does not apply to the principal component of your EMI.

5. Can I claim Section 80E benefits for an education loan for studying abroad?

   Yes, 80E education loan tax benefits are applicable for studying abroad.

6. Is the deduction under Section 80E applicable to an education loan from a foreign institution?

   No, the 80E education loan tax benefits apply only to an education loan taken from an Indian financial institution.

7. What is the Section 80E tax deduction limit?

   There is no limit to the tax deduction benefit applicable under Section 80E. You can claim the actual amount that you have paid as interest on an education loan for the particular financial year.

8. What tax benefits are available for education in India?
   1. Section 80E provides a tax deduction benefit for the interest paid on an education loan for up to eight years. There is no maximum amount that can be claimed under this benefit.
   2. Section 80C allows parents to claim a tax deduction of up to ₹1,50,000 for tuition fees for their children’s education.
   3. Children’s Education Allowance received up to ₹100, and Hostel Expenditure Allowance received up to ₹300 per month per child qualify for a tax exemption under the Income Tax Act 1961.  It can be claimed for up to two children.

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Disclaimers:

*T&C Apply. For more details on risk factors, terms conditions, brochure, and exclusions, please read the policy wording and CIS carefully before concluding a sale.

Tax Benefits: Tax benefits are subject to conditions under Section 80D of the Act and amendments thereof. The tax laws are subject to amendments/changes from time to time. Please consult your tax advisor for details.