Education Loan Tax Benefit

✓ All about 80E & TCS

✓ Tricks & Tips to save money on taxes

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Table of content

  1. Section 80E Deduction
  2. TCS on Foreign Remittance
  3. Eligibility criteria for Education Loan Tax benefits
  4. How to claim Education Loan Tax benefits
  5. Key points of Education Loan Tax benefits
  6. What is the procedure to claim the Education Loan Income Tax Exemption?
  7. Situations in which availing Section 80 E may not benefit You
  8. FAQ's
  9. Need Help? Ask Here!

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An education loan tax benefit is a provision that allows individuals to claim a tax deduction on the interest paid on a loan taken for higher education. This tax benefit is available in many countries, including India, where it is provided under Section 80E of the Income Tax Act. 

Section 80E Deduction

In India, tax benefits are available for educational loans under Section 80E of the Income Tax Act. This section allows individuals to claim deductions on the interest paid on an educational loan taken for the purpose of higher education. 

This tax deduction is available to all individuals, regardless of whether they are salaried or self-employed. It can be claimed by the individual who has taken the loan or by the parent or guardian of the student if the loan is taken in the student's name.

Claiming this tax deduction can provide some relief to individuals who are struggling to meet the high costs of higher education. It can also encourage more people to pursue higher education and invest in their skills and knowledge.

It is important to note that these tax benefits are only available for loans taken from recognized financial institutions, such as banks and other lending organizations. Loans taken from friends or family members are not eligible for these tax benefits.

TCS on Foreign Remittance

The TCS on foreign remittance in India is a way for the government to collect tax on money that is being transferred out of the country. This tax is applicable to individuals, businesses, and other organizations that send money abroad for various purposes, such as purchasing goods or services, investing in foreign companies, or sending money to family members living abroad. And you have to start paying TCS if the amount exceeds 7 lacs in a year.

According to recent changes to the finance bill (2020) under the Liberalized Remittance Scheme (LRS), a tax collection at source (TCS) of 5% will be applied to money sent outside India. However, if the remittance is being made for an education loan taken for higher education, the TCS rate applied will be 0.5% of the amount sent.

If you're planning to fund your higher education abroad using self-funds, and your parents/guardian does not have a pan card, then the TCS will charge you 10% of the amount remitted. And you still have to pay TCS even though you're not a taxpayer.

It is important for individuals and organizations to be aware of the TCS on foreign remittances in India and to ensure that they are in compliance with the relevant tax laws and regulations. This can help to avoid any issues with the government and ensure that the individual or organization is able to take advantage of the available tax benefits.

All you need to know about TCS on foreign remittances

A few things you need to know about the new tax on foreign remittances are as follows: 

  • After the Union Budget 2020-21, fresh amendments have been introduced to the Finance Bill, where 5% of tax would be levied on overseas remittance as TCS (Tax collected at Source) under the Liberalized Remittance Scheme (LRS) as a new provision.
  • This bill will come into effect after 1st October 2020, where tax would be levied on international fund transfers above 7 lakhs.
  • People remitting funds via LRS will have to pay the tax collected at the source (TCS). Remitting made after 1st October 2020 above 7 lakhs, TCS will be calculated. For instance: In FY 2023, if you remit 15 lakhs, the amount will be calculated on the exceeding threshold i.e. 8 lakh. 5% of the 8lakh will be deducted as TCS i.e. Rs 40,000.
  • Indian Resident investors who fund their accounts under the Reserve Bank of India (RBI), this is only applicable under the Liberalized Remittance Scheme.
    This would include expenses on medical treatment, foreign education, investment in real estate, sending maintenance for relatives abroad, and also stocks and bonds.
  • Transfers that were done before October 2020 will not be affected.
  • GST will not be applicable to the TCS amount.
  • TCS will be collected from the authorized dealer and then will be deposited with the Government.
  • TCS is 0.5% on remittance on account of educational loans taken from financial institutions.

Therefore, for students who have procured loans to pursue education overseas, keeping their prerequisite into consideration, TCS on remittances supported by financial institutions for study abroad is kept at 0.5% on the payment above Rs 7 Lakhs.

Eligibility criteria for Education Loan Tax benefits

According to the Income Tax Act of 1961, an individual who has taken out a loan for their own or their spouse's or children's higher education, or if they are the legal guardian of someone who has taken out such a loan, may be eligible for a tax benefit on the education loan under Section 80E.

To be eligible for the tax benefit, the loan must have been taken from a financial institution. The tax benefit is available only for the interest paid on the education loan, not the principal amount.

For example- Let's suppose the total EMI of your Education Loan is Rs. 20,000 and in that installment, your total principal amount is Rs. 16,000 and the rest of Rs. 4,000 is your interest amount, as per section 80 E, you can claim tax deduction only for the interest paid i.e. 4000 per month. So, for the total EMI paid on your Education Loan would be Rs. 2,40,000, you can claim a Tax deduction of Rs 48,000 for the financial year.

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How to claim Education Loan Tax benefits

To claim a tax deduction on an education loan, the co-applicant must report the total amount of interest paid on the loan during the previous year when preparing their tax documents. This amount can be calculated by adding up the interest paid through installments. It is important to remember that this tax deduction applies only to income tax and not other taxes such as education cess or other minor taxes. 

The tax filing process can be completed online, and individuals must remember to include the education loan interest amount and provide any necessary supporting documents. It is crucial to follow the correct procedures when claiming this deduction to ensure that it is not denied.

The primary co-applicant must sign the LRS(Liberalised Remittance Scheme) form at the time of every disbursement, Now to claim this tax refund you can either this TCS towards your other tax liability or take a refund of it at the annual taxation. 

Any tax paid on foreign remittance will be reflected in Form 26AS, which you can submit to your employer so that they can adjust in your TDS and if you're self-employed, you can use it at the time of your annual taxation.

To claim these tax benefits, individuals must ensure that they have all the necessary documents, such as the loan agreement and proof of payment of interest and principal, and that they have properly reported their educational loan on their tax return. Failure to pay the TCS on foreign remittance can result in fines and penalties.

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Key points of Education Loan Tax benefits

  • The deductions are available for a maximum period of 8 years, starting from the year in which the individual starts repaying the loan. 
  • There’s no cap for the tax deduction in education loans, you can avail of any amount of interest paid for a tax deduction under section 80 E 
  • The tuition fees paid to any educational institutions, colleges, or universities in India for full-time courses are eligible for tax deduction under Section 80C of the Income Tax Act. The maximum deduction available under this section is INR 1.5 lakhs per financial year.
  • You can save up to 10 times more tax if you take up an education loan to fund your education than using your own funds
  • An education loan income tax exemption can be claimed either by the loan applicant or the co-applicant. So, even if the student returns to India during their loan repayment period, either they or their co-applicant can claim this education loan income-tax exemption. In any case, only one of the two can claim this exemption.
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What is the procedure to claim the Education Loan Income Tax Exemption?

  • An employee can avail of tax benefits on an 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.
  • Declaring that you have made interest payments towards the education loan when you file your annual TDS is the only step to claim this education loan income tax exemption under Section 80 E.
  • As a co-applicant, you may provide receipts of your EMI payments as proof while declaring your TDS.
  • If the co-applicant is a salaried employee, this proof of payment has to be provided before filing the TDS.

Although Section 80 E aims at helping education loan applicants save money on their repayment amount, there are certain conditions under which, they may not benefit much from this provision. Here is how.

Situations in which availing Section 80 E may not benefit You

Scenario 1: If the loan applicant is employed abroad after the course completion and the co-applicant doesn't qualify.

When you work in a country other than India, you are not eligible to file an income tax claim under Section 80 E. Also, if your co-applicant's monthly salary is less than Rs.5 Lakh, or if they only earn a substantial amount, then, according to the percentage of education loan income tax exemption as mentioned in the above table, they may not be able to save much under this provision.

Scenario 2: If your co-applicant has retired or is going to retire.

If your co-applicant has already retired with a pension or is nearing retirement, it is obvious that the monthly pension of your co-applicant will not match up to the salary drawn when they were employed. Generally, after retirement, their taxable income will reduce due to the senior citizen quota.

Scenario 3: Both, the student and the co-applicant are not in India.

If both you and your co-applicant are not present in India as they belong to the NRI community (Non-Resident Indian), and the loan applicant is not planning to be in India during the loan repayment years. In such a case, both you and your co-applicant are not eligible for an education loan exemption under Section 80 E.

The following conclusions may be drawn from the above scenarios:

  • If your co-applicant's annual income is less than Rs. 5,00,000, declaring your interest under Section 80 E may not benefit you much.
  • If you do not earn in India during your loan repayment period, you become ineligible to claim an exemption under this provision. The same applies to your co-applicant if they belong to the NRI community.

Education Loan FAQs

  • Is there a Tax benefit on an education loan?

    Yes, there are different sections of the Income tax act ( sec 80 E, sec 80 C) under which individuals can claim Tax benefits. Under sec 80 E, one can claim an unlimited deduction on the interest paid on the loan amount. and under sec 80 C, one can claim tax benefits on the amount paid as a tuition fee for colleges or universities in India.

  • How much is the 80E exemption?

    The loan is taken for the higher education of the taxpayer, spouse, or children, then the interest paid on the loan is eligible for a deduction under Sec 80 E of the Income Tax Act. There is no limit to the maximum deduction amount available under this section per financial year.

  • Who will get tax benefits on education loans?

    Tax benefits can be claimed by either the Co-applicant or the legal guardian of applicants like- children, spouses, or dependents, whoever has taken an education loan for higher education will be able to claim the tax benefits while they are repaying the loan for up to 8 years of tenure.

  • Can I claim both 80C and 80E?

    In addition to being able to claim a tax deduction under Section 80E, taxpayers in India may also be able to claim a deduction under Section 80C for tuition fees paid for the full-time education of up to two children.

  • Can I claim 80E while filing ITR?

    Yes, you can claim 80E while filing ITR, and If you process an education loan through WeMakeScholars, you will be getting various benefits like- full negotiation support on all the terms and conditions of the lenders. your loan process will be hassle-free and faster and all these services will be provided to you for free of cost.

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  1. Harish Bojja

    I have a query. Suppose a student is an applicant and the parents are co-applicants under the education loan, can everyone claim 80E for their portion of repayment made? Also, can the student claim if he is working overseas but pays tax on indian income?
    27 Jun, 2022 at 02:50 PM REPLY
    1. Paravesh Saireddy

      Hi Harish! Yes, both the applicant and co-applicant can claim the 80E tax benefit. For one-on-one guidance with your education loan process get in touch by requesting a callback on this link:
      28 Jun, 2022 at 12:22 PM REPLY

    I have a query. Suppose a student is an applicant and his elder brother(govt employee) is co-applicant under the education loan, can his brother claim 80E for repayment made?
    21 Aug, 2022 at 08:38 AM REPLY
    1. Hritik Jain

      Hi Ravi! Yes, both the applicant and co-applicant can claim the 80E tax benefit. For one-on-one guidance with your education loan process get in touch by requesting a callback on this link:
      22 Aug, 2022 at 01:38 PM REPLY
Naresh Kumar
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