Education Loan Tax Benefit

By: Bank of Baroda
Wed May 15, 2019
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All You Need to Know About Education Loan Tax Benefits under Section 80E of the Income Tax Act

Investing in a sound education has always been considered a worthy investment. A good degree can set you on the path of financial independence. But the costs associated with achieving a higher education degree cannot be ignored. As the cost of education continues to sky-rocket, students have little choice but to take out an education loan. Thankfully, the government offers some respite on education loans in the form of education loan tax benefits. Here’s all you need to know. 

Section 80E of the Income Tax Act of 1961

Students intending to take a loan for higher studies, also known as an education loan, can avail tax deductions under Section 80E of the Income Tax Act of 1961. This section of the IT Act specifically caters to education loans. Students may avail education loan tax exemptions for pursuing higher education in India or abroad.

Students who’ve opted to go abroad for higher education often incur higher expenses as compared to those pursuing higher degrees in India. Apart from paying high tuition fees, they also have to incur costs such as boarding or dormitory charges, travel costs, purchasing study materials and equipment (engineering boards, laptops, etc.) Keeping all these expenses in mind, the government introduced Section 80E of the IT Act. Under this section, students can avail some relief in repaying the interest component of their education loan. 

What is covered under Section 80E?

Under Section 80E of the IT Act, students can avail income tax benefit on education loan, when they become taxpayers. The tax benefit is extended on the interest portion of their education loan under Section 80E. The 80E specific deduction does not apply to the principal loan amount. While calculating the annual taxable income, students can deduct the entire amount paid as interest, while repaying the loan, i.e. the interest amount paid against the education loan is not taxed. You can avail deductions on the entire interest component of the loan.

Terms and conditions under Section 80E

To avail education loan deduction in income tax under Section 80E, you need to consider the below terms and conditions:

  • You can avail tax deductions on education loans taken on behalf of your children (biological and adopted) or your spouse. 

  • Under 80E, you may also avail the deduction if you are the legal guardian of the student.

  • You can avail 80E deductions only if you’ve applied for the loan from a recognised financial institution like a bank or an NBFC, or a charitable institution. 

  • You may not avail 80E deductions if an employer or a relative sanctioned the loan. 

  • 80E deductions are applicable only for individuals availing the loan and not Hindu Undivided Families (HUFs). Companies or firms can also not avail 80E deductions. 

Final word: Today, most students have to rely on education loans to get into a good school. Keeping this in mind, the government also offers student loan tax deductions of ₹150,000 on the principal loan amount under Section 80C of the IT Act.
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