If you have taken an educational loan to fund your higher studies in India or in a foreign country, you can get tax benefit under Section 80E of the Income Tax Act, 1961 - education loan tax exemption policy.
Under Section 80E - education loan tax exemption, the interest that you pay on the educational loan can be claimed as a deduction.
Things you need to know about education loan tax exemption - Section 80E of the Income Tax Act, 1961:
- The deduction is done only for the interest part of your loan’s repayment amount, not the principal part of the EMI.
- The deduction can be claimed by you or any other individual only if the loan has been sanctioned in your name or their name respectively. Education loan tax exemption is only for individuals and not for HUF or any other type of taxpayer.
- The education loan subsidy is only applicable for educational loans for higher studies.
- Higher education includes all fields of study, including vocational courses pursued after clearing senior secondary examination or its equivalent.
- You can claim a deduction on interest only if you have taken the education loan from any bank, notified financial institution or any approved charitable institution. Loans acquired from family, friends, employer, relatives are not applicable for education loan tax exemption.
- You can avail the tax benefit only if you have taken an education loan to support higher studies for yourself or spouse/children or for the student for whom you are the legal guardian.
- The deduction allowed is the entire interest part of the EMI paid during your financial year. There is no maximum limit of the amount that is allowed as deduction. You should obtain a certificate from the bank that segregates the principal and interest amount of the education loan remitted by you during the financial year.
- Education loan tax exemption can be claimed only when you start repaying. It is available till eight years, or until the interest is repaid completely, whichever is earlier. This means, if you repay the education loan, for example, within five years, you can claim the deduction only till five years.
- Accrued interest during your moratorium period, if any, gets added to the principal and repayment in EMIs becomes fixed. If you choose to pay interest during the moratorium period, it is included while calculating the time limit of eight years.
How to calculate the 80 E tax exemption benefits for you?
80 E Tax exemption calculation benefits are explained in detail with an example for your understanding. Let's assume you are taking an education loan form a public bank like SBI or Bank of Baroda (BOB). The actual interest rate reduces to the below mentioned when you claim the income tax benefits:
- Save 30% of your interest if you or your co-applicant’s income is above 10 lacs, making your effective rate of interest as 6.33% (female students) and 6.68% (male students)
- Save 20% of your interest if you or your co-applicant’s income is between 5-10 lacs, making your effective rate of interest as 7.24% (female students) and 7.64% (male students)
- Save 10% of your interest if you or your co-applicant’s income is below 5 lacs, making your effective rate of interest as 8.14% (female students) and 8.6% (male students)
How to claim the benefits?
An employee can avail tax benefits on education loan by informing their company's HR or accounts department so that less TDS is deducted from their salary. You can also claim it by filing tax returns online.
When you are submitting your tax deduction forms and documents you need to simply mention the amount of interest you have paid for the previous year for an education loan, which is usually paid in installments. The interest amount from the installments has to be summed up and reported. Provide supporting documents, if necessary.
Below is the recent webinar on the topic "Reducing your Education loan interest rate to 6.33% using Income Tax exemptions". It was an informative session for those who are interested in knowing the details about availing this discount in the rate of interest (if you have any doubts, please post them in the comments section below).
NOTE: WeMakeScholars is an organisation supported by the IT Ministry, Govt of India. Their motive is to offer unbiased education loan support to students who are planning for studying abroad. They are associated with 14+ banks (Public/Pvt/NBFC) in India and help you get the best education loan matching your profile, either with/ without collateral. If you are an aspiring student applying for an abroad education loan, you can request a callback from the WeMakeScholars team. The financial officer will get back to you and guide you until sanction. Please note there is NO fee charged by WeMakeScholars. Being a Digital India campaign supported organisation, all the services are at free of cost.