Education Loan tax benefit: Exemption & eligibility under Section 80E

Availing an Education Loan to pursue higher education is a popular choice among students. It allows them to enroll in higher education programs without stressing about the high fees or living costs. Education loans can also be utilized for overseas education, typically covering admission and tuition fees, living costs, as well as travel and insurance expenses. When it comes to repayment, tax benefits under Section 80E of the Income Tax Act, 1961, come into play. This provision allows for the deduction of interest paid on the education loan from taxable income. Read on to learn more about Education Loans and the associated tax benefits: 

What is Section 80E?

In India, Section 80E of the Income Tax Act, 1961, allows you to claim a deduction of the interest on Education Loan from taxable income. Education Loan tax benefits cover loans for your higher education or that of your spouse, children, and legal wards. Regarding the 80E deduction limit, there is no cap on the deduction amount. 

Deductions under Section 80E

The Education Loan tax exemption under Section 80E includes the interest component of your Equated Monthly Installments (EMIs) paid during the financial year. The principal amount of the loan is not deductible under this section. You can use an Education Loan and tax benefit calculator to determine the details. 

 

Who can claim tax benefits on interest paid on an Education Loan?

Under section 80E of the Income Tax Act, only individuals can claim Education Loan income tax benefits. You can claim the deduction if you took the loan for your own, spouse's, children's or legal ward's higher education. 

Axis Bank offers Education Loans to students aspiring for higher education in India or overseas on attractive interest rates. Prime Abroad, Prime Domestic, GRE Based Funding, and Income Based Funding are some of its education loan products. Prime Abroad caters to those pursuing full-time premier courses abroad, providing unsecured loans of up to Rs. 75 lakhs with a doorstep service, a multi-currency ForEx card, and a loan tenure of up to 15 years. Similarly, Prime Domestic extends support for selected leading full-time courses in India, offering unsecured loans of up to Rs. 75 lakhs with a loan tenure of up to 15 years.

GRE Based Funding focuses on unsecured loans for overseas universities, assessing eligibility based on GRE scores and providing loans of up to Rs. 50 lakhs. A moratorium is granted during the course period, and the loan tenure spans up to 10 years. On the other hand, Income Based Funding offers unsecured loans of up to Rs. 50 lakhs based on the co-applicant's income, covering full-time courses both abroad and domestically. The loan tenure for this option also extends up to 10 years. These tailored education loan solutions from Axis Bank aim to support students in pursuing their academic aspirations seamlessly. However, specific conditions may apply to these loans as set by the lender. So, for accurate details contact the nearest branch of the bank.

Who is eligible for an Education Loan?

The eligibility for an Education Loan can vary depending on the lender and loan programme. However, some general criteria are pretty consistent across most banks and financial institutions:

General Eligibility:

• You should be an Indian citizen.
• Your age should be between 18 and 35 years (It can vary with lenders).
• You should have secured admission to a full-time course at a recognised educational institution in India or abroad.
• You may have to present proof of income to show repayment feasibility. This can be done by bringing in co-applicant/s (parents, spouse, siblings, guardian) with their income proof.

What are the documents required?

Here are some common documents required for Education Loans in India:

1. Proof of identity: Passport, Aadhaar card, Voter ID card, Driving license, or PAN card
2. Proof of address: Latest utility bill (electricity, water, etc.), Passport, Voter ID card, Driving license, or Bank statement
3. Proof of income: Applicant's bank statement for the past 6 months (or 1 year in some cases), co-applicants bank statement (if applicable)
4. Admission letter from the educational institution: Official admission letter from the educational institution for the chosen course.
5. Fee structure breakdown from the institution: Document from the institution detailing the complete fee structure for your course
6. Academic mark sheets of previous studies: Mark sheets of Class 10th, 12th, and graduation (if applicable), Entrance exam scorecard (if applicable, like GRE, GMAT, etc.)

 

What is the tax benefit?

The tax benefit on an Education Loan under Section 80E of the Income Tax Act, 1961, allows you to claim a deduction for the interest paid, effectively lowering your taxable income and potentially reducing your tax liability. An Education Loan tax exemption calculator helps you work out the tax deductions. 

Who can claim this deduction?

The 80E Education Loan deductions can be claimed by individuals who have taken an Education Loan for higher education. You are eligible for tax deduction if you have taken the loan for your education, your spouse's education, or your children's or ward's education. Can co applicant claim tax benefit on Education Loan? Both applicant and co-applicant can claim tax benefits under Section 80E.

The purpose of the loan

The primary purpose of an Education Loan is to financially support individuals pursuing higher education when their own resources or other financial aid avenues like scholarships fall short. It allows individuals to access quality education and invest in their future without facing significant financial strain.

Deduction Amount

When claiming a deduction under Section 80E for interest paid on an Education Loan, there is no cap on the Education Loan tax exemption limit. There's no upper limit to how much interest you can claim! 

Period of deduction

You can claim the deduction for a maximum of eight years from the year you start repaying the loan interest. If you repay the interest component faster than eight years, your deduction benefit stops once the interest is cleared.

Here are 6 benefits of availing an Education Loan

The 6 key advantages of Education Loan and tax benefit in India include the following:

1. Access to quality education
2. Reduced financial burden
3. Tax benefits 
4. Credit building
5. Investment in your future
6. Increased independence and confidence

Also Read: Education Loan essentials: What you need to know

Final Thoughts

The Education Loan tax benefit under section 80E allows you to avail tax benefits for higher education. You don't have to pay taxes on the interest you contribute towards repaying the Education Loan. This means you can claim the interest paid in EMIs for deduction from the taxable amount. If it sounds too complicated, consider using an Education Loan tax benefit calculator for easy calculations.   

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.