The rising cost of education has turned education loans into a necessity for many families in India. In fact, according to a 2024 report, schools and colleges saw a 12-14% revenue growth just the past year.
To help lighten this financial load, the government provides tax relief through Section 80E of the Income Tax Act. This provision lets taxpayers enjoy a deduction of the interest paid on their respective education loans.Â
In this blog, we’ll dive into the 80E deduction, covering who qualifies, the limits, the documents you need, and how to effectively claim those tax benefits on your education loan interest.
Understanding Section 80E of the Income Tax Act
Section 80E of the Indian Income Tax Act allows taxpayers to deduct the interest they pay on education loans. This deduction can be availed by individuals for a maximum period of 8 consecutive years including the year they begin repaying the loan or until you have fully repaid your interest.
This benefit is particularly for interest on loans procured for higher education purposes, whether in India or abroad. The loan must be sourced from a credible financial institution or a sanctioned charitable organisation. There’s no limit on the amount taxpayers can claim under this section, but keep in mind that it only applies to the interest portion and doesn’t include the principal repayment.
Let’s take the example of Mr Sharma who took an education loan of ₹10 lakhs at 10% interest to fund his MBA. He repays interest of ₹1 lakh in the financial year 2024-25. He can claim a deduction of ₹1 lakh under Section 80E for that year.
| Education loan interest paid | 1,00,000 |
| Deduction claimed under 80E | 1,00,000 |
| Taxable income before deduction | 10,00,000 |
| Taxable income after deduction | 9,00,000 |
By claiming the deduction, Mr Sharma reduces his taxable income by ₹1 lakh and his tax payable.
Also Read: Mastering the mase: Your pathway out of student loan debt.
Eligibility criteria for 80E deduction
To claim the education loan tax benefit under Section 80E, certain conditions must be met:
| Eligibility criteria | Explanation |
| Nature of assesse | Applicable only to individuals. Other entities, such as HUF or companies, are not eligible. |
| Loan purpose | The loan must be obtained for higher education (graduation, post-graduation, professional courses). |
| Approved lender | The loan should be from a bank or financial institution recognised by the government. |
| Relationship to student | The loan can be taken by the student, parent, or legal guardian. |
| Loan disbursal and repayment | Deductions are available on interest paid during the repayment phase, commencing from the year the loan repayment begins. |
| Maximum claim duration | Deduction can be claimed for 8 years at most or until interest is paid in full. |
If a taxpayer doesn’t meet any of these conditions, they are not eligible to claim the deduction.
Deduction limits & timeframe for claiming 80E
The Section 80E deduction offers tax relief on education loan interest with no upper limit on the deductible amount. The benefit kicks in from the year interest repayment begins and can be claimed for up to eight consecutive years.
This structure is especially helpful during the early repayment period, when the interest component is highest, making it a valuable tool for tax planning.
Importantly, this deduction is available only under the old tax regime.
Must-Read:Â Unlocking tax benefits: Your guide to section 80GG deductions
Documents required to claim 80E deduction
In order to claim interest on an education loan deduction as per Section 80E, taxpayers need to provide certain documents. These are usually required while filing income tax returns.
| Education loan certificate | Issued by the lender, showcasing interest paid in the financial year |
| Loan sanction letter | Documents confirming the loan approval date and amount |
| Proof of education | Admission or fee receipt to establish higher education |
| PAN card | Of the borrower and the financial entity |
| Bank statements | Displaying EMI deductions and payments made |
Conclusion
Section 80E gives individuals beneficial tax relief while managing education loans. With no upper limit on the deduction and an 8-year claim period, it reduces their tax burden and supports higher education goals. If eligible, make sure to claim this education loan and tax benefit to ease financial planning and make the most of the investment in education.
Read More: Plan, prosper, repeat: Unveiling the dos and don’ts of financial planning.
FAQs
- Is there any tax benefit on an education loan?
Yes, taxpayers can claim a tax deduction on the interest paid for an education loan under Section 80E Income Tax. This deduction only applies to the interest, not the principal, and lasts for eight years starting from the year when repayment begins. The loan needs to be acquired from a recognized financial institution or a charitable trust. This can help lower taxable income thereby reducing the overall tax liability.
- Is interest paid on an education loan deductible under 80E?
Yes, the interest paid on an education loan qualifies for a full deduction under Section 80E of the Income Tax Act. This deduction does not include principal repayment. Claiming this education loan tax benefit helps lessen the taxpayer’s overall taxable income and tax liability. The deduction is available for a maximum of eight consecutive years, starting from the year reimbursement of the interest begins.
- Can 80E be claimed in the new tax regime?
No, Section 80E deductions are not available under the new tax regime. While the new regime offers decreased slab rates, it eliminates most deductions and exemptions, including the one under 80E. To avail of the advantages under Section 80E, a taxpayer must choose the old tax regime while filing tax returns.
- How to calculate 80E deduction
To calculate the 80E deduction, the overall interest paid on the education loan throughout the fiscal year must be summed up. This entire interest amount is eligible for deduction without any upper cap. The benefit applies only to interest payments and not to principal amounts.
- Can I claim both 80C and 80E?
Yes, 80C and 80E are independent. 80E is for interest on education loan and 80C is for principal repayment of the same loan subject to a ₹1.5 lakhs limit. A taxpayer can claim both the deductions simultaneously and maximise tax savings.
