Tax Benefits of Education Loans 2024!

In addition to helping you pay for your further study, an education loan can help you save money on taxes. for studies abroad.

If you are repaying an education loan, the interest paid on the loan is allowed as a deduction from your total income under Section 80E.

What is 80E Education Loan Deduction?

The 80E education loan deduction is a tax benefit given to people who take education loans for higher studies. This deduction applies only to the interest paid on the loan, not the principal amount. This deduction is allowed for a maximum of eight years, beginning in the year that you start paying back the interest.

The Education Loan Deduction Is Available to Whom?

Interest paid on student loans is a deduction available only to people., Hindu Undivided Families (HUFs) and other taxpayer categories are not eligible for it. The loan should be for the higher education of yourself, your spouse, your children, or a student for whom you are a legal guardian. Parents can claim this deduction for loans taken for their children's higher studies. This deduction is available only to those who pay taxes under the old tax regime.

Where Can Education Loans Be Taken?

You can claim a deduction under Section 80E only if the loan is taken from a bank, financial institution, or approved charitable institution. Loans taken from friends or relatives do not qualify for this deduction.

Purpose of Education Loan

You can claim an education loan deduction only if the loan is for higher studies. It doesn’t matter whether the loan is for studies in India or abroad. Higher studies include any course pursued after passing the senior secondary examination or its equivalent. This includes both vocational and regular courses.

Section 80E Tax Exemption Limits

The interest component of the education loan can be deducted from your income, just like deductions under Section 80C and Section 80D. The amount that you are able to deduct under Section 80E is unlimited. No matter how much you really spent in interest over a fiscal year, you can deduct it from your income.

For instance, if you repay Rs 2,00,000 for the interest portion of your education loan and your gross taxable income is Rs 6.7 lakh after other deductions, your total income for tax calculation becomes Rs 4.7 lakh and you would be taxed appropriately..

Deduction Under Section 80E

The deduction allowed is the total interest part of the EMI paid during the financial year. There is no limit on the maximum amount of deduction. You need to obtain a certificate from your bank that separates the principal and the interest portion of the education loan paid by you during the financial year. Only the total interest paid will be allowed as a deduction. No tax benefit is allowed for the principal repayment.

Period of Deduction

The deduction for interest on the loan starts from the year you begin repaying the loan. It is available only for 8 years, starting from the year you start repaying the loan or until the interest is fully repaid, whichever is earlier. The tax benefit will be available for five years rather than eight if you pay back the loan in five years. You are not eligible to deduct interest paid after eight years if your loan term is longer than eight years. It is therefore advised that the education loan be repaid within eight years..

Eligibility for 80E Deduction on Education Loan

• Only the interest component of an educational loan can be claimed as a deduction.
• Only individuals can claim a deduction on education loans. Hindu Undivided Families and companies cannot claim the 80E deduction.
• The 80E deduction can be claimed only if the education loan is taken from recognized financial institutions and charitable organizations and not from friends or relatives.
• Loans must be taken for higher education. It can be taken either by a taxpayer or their spouse or children.
• The deduction can be claimed for a maximum of 8 years.
• It is available only to those who have opted for the old tax regime.

Is it Good to Repay the Education Loan Early?

Many borrowers choose to use the entire 8-year repayment period for their loans. Some do this because they prefer to invest their extra funds rather than pay off the loan. They stretch out the repayment period to take advantage of the tax benefits available for education loans. This strategy works well for individuals who believe they can earn a higher return by inveigh you can make more money from investments than the interest rate on your loan, you might want to think about using this strategy. However, it is advised to repay the loan as soon as possible if your objective is to become debt-free and have a solid payback history. By doing this, you will be able to keep up your good credit and raise your chances of being approved for a bigger loan when buying a home.

Conclusion

The government has made efforts to support educational accessibility by making education loans easily accessible and by providing tax advantages for loan repayment. The goal of these initiatives is to increase access to education for more people. sting their surplus instead of paying off the loan interest.

Education loans are beneficial not only for students but also for individuals who are employed and aspire to pursue higher education after gaining some work experience. By staying informed about the latest offerings and making a well-researched decision, students can secure the best possible financial assistance

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Author - Abhishek Sonawane

Abhishek Sonawane, an MBA graduate from the prestigious Indian Institute of Management Visakhapatnam(IIMV), brings over ten years of experience in the finance domain. His extensive background includes various roles in financial management and strategy, providing him with a comprehensive understanding of the financial landscape. Abhishek’s expertise and dedication to financial education make him an authoritative voice in personal finance, helping readers make informed financial decisions.