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Smart Debt, Smarter Taxes: ABCs of Education Loan Tax Benefit


Education loan tax benefits can be a game-changer for students and their families, providing valuable financial relief during the pursuit of higher education. By taking advantage of deductions, credits, and exemptions offered by the tax code borrowers can substantially reduce their tax liabilities and ultimately ease the burden of loan repayments.

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Education loan tax benefits can be a game-changer for students and their families, providing valuable financial relief during the pursuit of higher education. By taking advantage of deductions, credits, and exemptions offered by the tax code borrowers can substantially reduce their tax liabilities and ultimately ease the burden of loan repayments.

Tax Benefit 101:

Road trips, making friends for life, finding yourself and maybe the occasional education – this is what comes to most of our minds when we think of our college life. However, struggling to pay your tuition fees can be a wet blanket to all that your college experience has to offer. 

In times like this, it’s pretty smart to take an education loan, especially when there is a sweet chance of an education loan tax benefit!

Read along to learn more about education loans, how to take one and the smartest move to go easy on your pockets.

Educate Me About Education Loan Tax Exemption

An education loan is the money a bank lends a student to easily pay for all college expenses.

Isn’t it sweet? They basically fight to pay for you. So before you settle for any of them, learn about the education loan exemption like a collateral-free loan,  income tax rebate on education loan, and the education loan tax benefit limit.

Broadly speaking, there are two types of education loans: Domestic and Study Abroad. What you choose is mostly based on whether you want to gain to gain global exposure or increase your network domestically. Both usually cover standard tuition fees and some living and transport costs as well.

If we’re getting specific, there are three types of Education Loans in India based on  level of education you want to pursue:

  • Undergraduate loan: For students seeking a bachelor’s degree of three-five years. 
  • Graduate student loans: This is financial aid given to anyone pursuing their master’s degree after their bachelor’s. You are required to start repaying this loan after a grace period of six months of leaving your school/college/university.
  • Professional education loans: These are offered to those wanting to pursue education related to their professional careers.

Although Indian education loans do not offer a tax exemption on the principal loan itself, they offer an education loan tax benefit on the interest rates paid when repaying.

Secured & Unsecured Loans 101:

Secured and unsecured student loans are two distinct types of financial assistance available to students to fund their education. Each option comes with its unique characteristics and considerations, catering to different financial circumstances and risk preferences

When you’re travelling by auto and you don’t have enough money, you run to your house to get the cash. But you ask your friend to stand near the auto so the bhaiya trusts you to come back with the money, right? Your friend here is the collateral.

When banks lend you money, they ask you to provide some security to old as collateral to ensure that you repay the principal loan + interest. This could be the evidence of property, cars, or anything worth the same amount as the loan in assets. The interest rates on the loan varies between 8.2% to 13% across public and private banks.

Some banks allow you to take the loan without collateral, but the interest rates are usually higher, say, 10.5% – 16%.

Choosing between a secured and unsecured student loan depends on the borrower’s specific financial situation and comfort level with offering collateral. Both options aim to provide students with the financial support they need to pursue their educational goals, but it is crucial to carefully consider the terms, interest rates, and repayment options before making a decision.

So Tell Me About Section 80E Education Loan?

Let’s not even pretend – we all love freebies and special considerations. So if there’s a way to be exempted from the tax on your education loan interest, why wouldn’t you jump at that?

Section 80E Education Loan operates as special criteria under the Income Tax Act of India. It is an education loan tax exemption, which means that it deducts not the loan directly, but the interest you pay on that loan. This education loan deduction can be claimed from the year you start repaying the loan to up to 8 years. (Hopefully, by that time Sherlock Season 5 would have been released!)

Education Loan Tax Benefit? Sign me up!

Firstly, only an individual (and not their family unit or other taxpayers) are eligible for Section 80E tax exemption. But don’t worry, if your parents are taking out this loan for you, they would be eligible for education loan tax exemption.

There are no limitations to the university, course or field of your study to avail of the education loan exemption on your interest amounts. As far as the education loan tax benefit is concerned, all degrees are considered equal. Furthermore, there is no limit on the minimum or maximum amount you can claim as education loan deduction. However, the education loan income tax benefit is valid only for eight years from the time you start repaying your loan, after which you are required to pay the full tax amount.

Education Loan Deduction & Repayment

Section 80E education loan allows you eight years to repay, which is a lot of time to study, explore, find a job, switch your job, and earn enough to pay back comfortably. This means that if you’re starting off with an Engineering degree, it gives you enough time to find your passion in filmmaking by the end of this rebate on education loan.

When you sign the loan papers, your ride-or-die (AKA: your parent), signs it with you. For safety, they can bring their own ride-or-die with them too. These two people are your loan ‘“co-applicants” or “co-borrowers”. It convinces your bank to sanction your loan when two people back you up. And yes, the co-applicant is eligible for the income tax rebate on education loan too. If your ambition and drive aren’t enough reasons to support you, the education loan tax benefit most definitely will be!

Let’s Get That Cash: Claiming The Education Loan Income Tax Benefits

When banks fight to support your education loan with tax benefit, at the risk of sounding like Lady Whistledown, you need to be cautious and well-informed on who you pick.

Here are the steps to getting your loan:

1. Research your banks

There are heaps of banks at your disposal that draw you in with compelling offers on their education loan deduction plans. Research your lender thoroughly, compare their offers and choose the one that caters to all your education needs the most.

2. Fill out their application forms

You can get these forms in person or online. When you go through them, don’t hesitate to have an informed adult read through them with you and fill out all your information accurately.

Here are the essential documents you might need:

  • Identity proof: Aadhaar, PAN, Passport, or any Government document stating your proof of identity and address.
  • Academic records: We know you’re an academic weapon. But your bank needs proof in the form of Transcripts, Transfer Certificates, special certifications and anything that will support your claim as someone who values education.
  • Financial documents: Bank statements, Income Tax documents, and any relevant financial documents to show as proof of your income and stability of finances over the recent years.
  • Collateral proof: Property or asset documents if you’re pledging a collateral for a loan.

3. Interview time!

Nothing to be nervous about. They just want to know what you’re about to study and your general idea about where your education might take you. You can use this opportunity to clarify any doubts you might have about education loan tax benefit and income tax rebate on education loan as well.

The bank or financial institution might take some time to go over your documents, so just sit back, relax and take time to plan a successful future after your education!

4. Bank approval

After the bank checks the credibility of the documents, the student, the loan-applicant and the co-applicant, the bank is all set to approve your education loan! The final step is to write a promissory note to the bank which is just the way of officially pinky-promising them that you’ll pay them back.

5. Loan Disbursal

When the loan is approved, the bank sanctions the education fee directly to the chosen University. This will either be done semester by semester, or for the course in its entirety.

6. Start filing your ITR with education loan tax exemption

When you file your income tax return, mention the interest amount paid to claim your education loan income tax benefit. Alternatively, you may take the assistance of a Chartered Accountant to file ITR.

To truly avail of the education loan tax benefit, get an interest payment certificate from the bank.

Key Takeaways

So imagine that you want to join your dream course, and the fee is 10 lakh. You take out a loan from a reliable bank offering you 10% interest. You are still required to repay the whole 10 lakh within 8 years of beginning to repay your loan. However, our heroic Section 80E Education Loan part of the Income Tax Act allows you rebate on education loan letting you forgo the 10% interest you need to pay on EMI.

Read up well, and refer to trusty official websites and financial experts to help you in this process!

Also, congratulations and best of luck on your education journey!

Frequently Asked Questions

  1. Is there a limit on how many children I can claim education loan tax benefits for?
  2. Yes, the education loan tax exemption is limited to an education loan taken for 2 children. However, if both parents are taxpayers, the income tax rebate on education loan is applicable for 4 children.

  3. Are there any income restrictions to claim the tax deduction?
  4. Not based on income but the maximum education loan exemption is for ₹1.5 lakh per year (Section 80E of Income Tax Act, 1961

  5. Can I claim tax benefits for education loans taken for studying abroad?
  6. Yes, the rebate on education loan is applicable for education loans taken to study both in India and abroad.

  7. Can I claim tax benefits if I have taken an education loan for my spouse’s education?
  8. Yes, you can claim an education loan deduction on your interest for any loan taken for the education of your spouse, parents, and children. The tax rebate on education loan is also applicable to anyone you signed the loan for as a co-applicant.

  9. Do education loan tax benefits apply to loans taken for vocational courses or skill development programs?
  10. Yes! The education loan tax benefit is structured to aid students in any type of education, including vocational and skill development courses.
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