Know Education Loan Tax Benefits: All About Section 80E of Income Tax Act
Studying abroad? How exciting! More global exposure, more cultures to know about, more people to learn from, and… And? And bigger tuition fees to pay, bigger education loans to take, and probably bigger interest to pay off.
Well, that doesn’t sound nearly as exciting as I thought. Yes, but the latter can be taken care of. Let us introduce you to this incredible provision in the Income Tax Act helping reduce interest on your education loan called Section 80E.
With your higher education, you are starting a new phase of your life. Burdening it with the repayment of your education loan with a high RoI is the last thing you would want to do. So, take advantage of education loan tax benefits and learn about Section 80E of Income Tax Act. Read on and unlock the “not-so-secret” secret to massive savings on income tax against an education loan.
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When you don’t want a large sum of your hard-earned money to go towards paying income tax, you try to find avenues that can help reduce this burden.
Now, even though completely avoiding paying tax may not be possible, you can still cause deductions on your interest repayment against education loans.
And for that, you must get a clear understanding of what section 80E of Income Tax Act is and how you can take advantage of it.
But it is so difficult to understand this jibber-jabber. Well then let us explain it in simple language. Basically, income tax deduction against education loans. That is what Section 80E of Income Tax Act provides.
But before we delve further into the nitty-gritty of this section, here are a few things you must know. With this information, it will become easier for you to understand the benefits of Section 80E.
|Section 80E Explained in a Phrase||Provides income tax deduction against an |
|How to Take Advantage of Section |
|Claim savings under this section while filing your taxes|
|How Much Can I Save Through |
|Depends on the size of your annual salary, income tax|
bracket, and education loan
|Who Can Claim It?||Either the applicant (you) or the co-applicant|
|For How Long Can I Claim it?||8 years|
|What Should be the Criteria for|
the Purpose of an Education
|You can only claim it against an education loan taken only for the purpose of higher education.|
|Can I Take the Education Loan |
From Any Bank?
|What Should be the Criteria for the Purpose of an|
|What is the Upper Limit on Savings Through Section 80E?||No cap|
|Is Section 80E Always a Good |
|Not always. Read below for further details.|
Education Loan Tax Benefits Under Section 80E
Deductions/ Savings Under Section 80E of Income Tax Act
You took an education loan of 30 L.
According to the rate of interest (RoI), you’re paying an average annual interest of 3.1 L on this loan, which makes it a total of 25 L over the course of 8 years.
Overwhelming? Let’s use Section 80E.
● if you claim this entire annual interest of 3.1 L and
● you or your co-applicant falls under the 30% income tax bracket,
you may end up saving 1 LPA on your taxes.
So, over the course of 8 years, you will end up saving 8 LPA. 8 lakhs per annum!!!
Now if that isn’t a massive deduction then what is!
All the interest during the loan repayment can be claimed as a deduction in your income tax.
The deduction can’t be claimed on the principal amount and only on the interest.
Who Can Claim Deduction Under Section 80E of Income Tax Act?
1. Deduction Amount
2. Purpose of Education Loan
The purpose of an education loan should only be higher education from a recognized institution. Other than that, there are no conditions on it being India or abroad, UG or PG, and public or private institution.
Since you can take this loan for yourself, your spouse, children, or legal guardian, you, as well as your parents can claim the deduction.
3. Source of Loan
4. Interest Repayment Status
NOTE:The information mentioned is only for basic understanding. If you wish to get amount-specific information, contact our expert Board of Advisors.
Important Documents to Claim Deduction Under Section 80E of Income Tax Act
Loan sanction letter from an RBI-recognized financial institution
A bank/ financial institution issued repayment statement on the education loan
For salaried individuals – bank statements and Form-16
File your claims online through the income tax portal. Using your PAN and password, log into the website to file an ITR.
How to Claim Savings?
Thanks to the accessibility of information and continuously evolving technology, the claiming process is fairly simple.
As mentioned above, you can file your ITR through the official website of Income Tax. but how can you claim Section 80E?
● While filing your ITR, under Section 80E, mention the amount paid towards the interest of your or your child’s education loan.
● Then, deduct that amount from the taxable income.
● If you are a salaried employee, you can simply provide your employer with proof of interest payment before TDS.
When Will Section 80E Not Be Beneficial to You?
Although in the world of education loan tax benefits, Section 80E of Income Tax Act is common knowledge, it may not always be advantageous.
Here are some situations when claiming 80E would not be beneficial to you.
|If, after studying, you will be working |
|Because you will not be filing taxes in India|
|If you are not in India during your repayment and your co-applicant is an NRI||Because you will not be filing taxes in India|
|If your co-applicant doesn’t earn |
|Lower salary → Lower tax filed → Less deduction on interest → Not very beneficial|
|Your co-applicant is about to be retired to is retired||Because the taxable income reduces drastically after retirement due to the senior citizen quota.|
We know what you are wondering.
If only there was the easiest way to get the best student loans with the maximum savings.
Well, there is.
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