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Education loans are not just a tool for higher studies; they offer smart and legal ways to save a significant amount on taxes.
How an education loan can save a huge amount on taxes. (Representative Image)
For many families, especially those planning higher education abroad, managing the financial burden can be a major challenge. That’s why education loans have become the go-to solution. But interestingly, even individuals who can afford to pay education expenses upfront are now opting for loans—strategically. Why? Education loans offer smart, legal ways to save a significant amount on taxes.
Education is one of the most valuable lifetime investments, but with the rising cost of education both in India and abroad, it’s becoming increasingly unaffordable for many families. To ease this financial pressure, the Income Tax Department offers several tax deductions on education loans.
Income Tax Rebate on Education Loan under Section 80E of IT Act
Under Section 80E of the Income Tax Act of 1961, interest paid on an education loan—which is included in your EMI—can be deducted once you have taken out the loan. This benefit can be claimed for a maximum of eight years, or until the entire interest is repaid—whichever is earlier. To avail of this deduction, borrowers must obtain a certificate from the lending institution, clearly stating the amounts paid toward principal and interest.
Who Is Eligible
Only individual taxpayers can claim; HUFs (Hindu Undivided Families), corporations and trusts are excluded.
The loan must be taken from a recognised financial institution—a bank, NBFC, or approved charitable organisation.
The loan must fund higher education—undergraduate, postgraduate, professional, or vocational courses in India or abroad.
You may claim the deduction for loans taken for your education or that of your spouse, children or a legal ward. Parents co-paying EMIs can each claim their respective share.
Strategic Use of 80E Deduction
No deduction cap: Unlike Section 80C, there’s no limit on the interest you can claim
Old vs New tax regime: Section 80E benefits apply only under the old tax regime, choose it to take full advantage.
Timing matters: Claim the interest in the year it’s paid; accrued but unpaid interest doesn’t qualify.
Avoiding Scrutiny
Ensure the interest amount claimed matches your Form 26AS and the lender’s records.
Maintain proper documentation like loan agreements, interest certificates and payment receipts to counter any tax notices. Filing through platforms like TaxBuddy can streamline this process
Education loans not only finance academic dreams, they also offer a significant tax advantage through Section 80E. With no cap on interest deductions, up to eight years of relief, and a pathway to strategic financial planning, savvy borrowers can save lakhs in taxes, even as they pay for their future.
Before you sign your next loan document, don’t forget to check how much you can save with Section 80E.
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al…Read More
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al… Read More
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Delhi, India, India
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