Section 80E Income Tax: Tax Benefits on Education Loan Interest

Section 80E of the Income Tax Act, 1961, provides a specific deduction for interest paid on Education Loans. Over 2023-24, more than ₹28 Crore was disbursed under Education Loans; with these numbers comes the importance of knowing how the Income Tax Department has sanctioned deductions on the same. This blog breaks down what Section 80E covers, who can claim it, the required documentation, and how to maximise the benefit. Keep reading to know more! 

What is Section 80E of the Income Tax Act?

Section 80E allows taxpayers to claim deductions on interest paid for Education Loans taken for higher studies. It was introduced to promote education financing. Here are some key pointers about Section 80E: 

• The deduction applies only to interest components of the EMI, not the principal loan amount. 
• Individuals can get an unlimited deduction on interest payments from their taxable income, i.e. there’s no cap on the amount. 
• It can be availed from the first year of paying interest on the loan, for a maximum of 8 consecutive years or till the interest is paid in full, whichever is earlier. 

On another note, as per recent news, claims made under Section 80E must now include detailed information such as the lender’s name, the loan account number, and the date of loan sanction. These requirements ensure that deductions are valid, allowing the tax department to match them against records in the Annual Information Statement (AIS) and eliminate any scope for unverifiable or inflated claims. 

An Easy Example:

A person has taken an Education Loan of ₹10,00,000 at an interest rate of 10% per annum. 

Annual interest = ₹1,00,000 

Suppose repayment (principal + interest) is completed in 5 years, instead of 8 years. 

As per Section 80E, only the interest component qualifies for deduction. 

So, they can claim ₹1,00,000 per year as a deduction for 5 years, amounting to a total deduction of ₹5,00,000. 

The benefit stops once the loan is fully repaid, so even though the provision allows up to 8 years, they get it only for 5 years in this case. 

Also Read: What is IGST - Integrated Goods & Services Tax? Meaning & Full Form 

Who Can Avail of Tax Deductions Under Section 80E

For the year 2024-25, the Income Tax Department has introduced new disclosure requirements that every taxpayer must be aware of. These are some of them -  

• Individual Taxpayer: The deduction can be claimed by the primary borrower or the co-applicant. If you’ve taken the loan on behalf of your spouse or child, you can claim the benefit, but they can’t. 

• Claimant: Only individuals can claim deductions under section 80E; it doesn’t apply to Hindu undivided families (HUF) and companies.  

• Loan Source: The Education Loan must be obtained from approved lenders, including scheduled banks, non-banking financial companies (NBFCs), and certain charitable institutions. Loans from relatives or friends don’t qualify. 

• Course Eligibility: The loan must be availed for higher studies following completion of senior secondary (12th standard) or equivalent qualification. 

• Tax Regime: The deduction can only be claimed under the Old Tax Regime. 

Documents Required to Claim 80E Deduction

Interest Payment Certificates: Obtain interest certificates from your lender showing the exact principal and interest amount paid during the financial year. Most banks and NBFCs provide these certificates automatically, but you should request them if not been received. 

In some cases, you may need to provide additional documentation to the Income Tax Department for further scrutiny. Here is what you can keep handy: 

Loan Agreement Documentation: Maintain the original loan agreement that mentions the borrower's name, loan amount, interest rate, and repayment terms. This document serves as primary evidence of your loan relationship with the lender. 

Repayment Evidence: Maintain bank statements, EMI receipts, and online payment confirmations showing regular loan repayments. These documents support your claim and provide transaction trails for verification purposes. 

Also Read: Understanding the Professional Tax System 

How to Maximise the 80E Benefits

• Ensure all EMI payments are routed through traceable banking channels. This makes it easier to obtain payment records, which are crucial for claiming the deduction. 
• Remember, the benefit is available for 8 years from the start of repayment. If possible, structure your repayment plan to claim the deduction over the full period, especially if the interest payout is significant. 
• If there are joint borrowers (for instance, parent and child), only one can claim the deduction on a particular loan for a given year. Plan with your family who should best take the benefit, depending on the individual’s income and tax bracket. 
• Always accurately reflect the deduction under the ‘80E’ section in your Income Tax Return every year. Retain relevant documents for future reference. 

Also Read: What is Tax Loss Harvesting? Benefits, Strategy & How It Works 

To Conclude

Section 80E provides valuable tax relief for Education Loan borrowers by offering unlimited deductions on interest payments. By understanding the eligibility criteria, maintaining proper documentation, and strategically planning your repayments, you can significantly reduce your tax burden while pursuing higher education goals. 

If you’re considering borrowing, Poonawalla Fincorp offers an Education Loan with flexible options, transparent terms, and quick processing. 

Frequently Asked Questions

Is there any limit on the deduction amount under Section 80E?
No, there is no upper limit on the deduction amount under Section 80E. You can claim the entire interest amount paid during the financial year as a deduction. 

Can parents claim Section 80E deduction for their child’s Education Loan?
Yes, if the parent is a co-applicant of the loan with their child, they can claim the Section 80E deduction.  

Does Section 80E apply to loans taken for studying abroad?
Yes, Section 80E covers Education Loans taken for studying in foreign universities or institutions. The course must be for higher education, and the financial institution should be recognised. All other eligibility criteria remain the same for domestic and international education. 

Is there any time limit for claiming Section 80E deduction?
Yes, there’s a time limit for claiming the Section 80E deduction. You can claim it for 8 years from the time you start paying the loan or until interest is fully paid off, whichever comes first. 

Does Section 80E apply to vocational or part-time courses?
Yes, you will be eligible for Section 80E deduction for any course in higher education. This includes vocational as well as regular courses. 

What happens if I prepay my Education Loan early?
If you prepay your Education Loan, you can only claim a deduction for the interest component paid during that financial year. Once the loan is fully repaid, no further deductions can be claimed under Section 80E, even if the 8-year period hasn't expired. 

Can I claim Section 80E for multiple Education Loans simultaneously?
Yes, you can claim Section 80E deduction for multiple Education Loans simultaneously. However, each loan must meet the eligibility criteria independently, and the 8-year limit applies separately to each loan. Also, the interest payments should be made in the same assessment year.