Hello friends! Imagine your child gets admission to a top university abroad like IIT or Harvard, but the fees are so heavy that your dream remains unfulfilled. What if I told you the government has created a formula for you, allowing you to save thousands of rupees in taxes while paying the loan installments? Yes, you heard that right!
Tax benefits on education loans not only lighten your pockets but also give wings to your dreams of higher education. Today, we’ll discuss this in detail—in simple terms, so you can benefit immediately. Let’s begin this useful journey.
What is an education loan and why is it important?
Education loans are financial assistance provided by banks and financial institutions for higher education. Whether it’s an IIM in India or an MSc abroad, this loan covers tuition fees, hostel expenses, books, and even a laptop. Given the rising cost of education in India, this loan is a boon for middle-class families. But the question is – the loan has to be repaid anyway, so how does the tax benefit add up? Let’s get straight to the point.
Tax Deductions under Section 80E: Understand the Key Benefits
Section 80E of the Income Tax Act allows deduction on the entire interest paid on an education loan. What does this mean? Tax will be calculated by subtracting the interest from your total taxable income, reducing your tax bill. There is no upper limit – whether the interest is 1 lakh or 5 lakh, it will be deductible.
Example: Suppose you have a salary of ₹10 lakh per annum and paid ₹1.5 lakh in interest on an education loan. Under the old tax regime, you would be taxed at the 30% tax slab, resulting in savings of ₹45,000.
This benefit starts from the first year of loan repayment and lasts for a maximum of 8 years, or until the interest is exhausted. ClearTax’s guide explains that this deduction applies only to the interest, not the principal.
Note that this benefit is only available to individuals – not HUFs or companies. And yes, it’s not available under the new tax regime, so choose the old one if the loan is large.
Who can claim it? Eligibility Criteria
Not everyone, but the following can avail this benefit:
- Borrower: Loan taken for self, spouse, child, or legal ward.
- Co-borrower: Parent or guardian paying the installments.
- Indian citizen: Student must be Indian, loan must be from an Indian-recognized institution.
The purpose of the loan must be ‘higher education’ – any course after 12th grade, such as graduation, post-graduation, diploma, or vocational training. Whether in India or abroad does not matter.
However, if the loan is taken from friends, friends, or relatives, there is no benefit. Only from banks, NBFCs, or charitable organizations. According to ET Money, this fully applies to foreign studies as well, which is a big relief for students.
How to Claim? Step-by-Step Process
Claiming tax isn’t difficult, just have the right documents:
- Get a bank certificate: Obtain a certificate from the loan institution every year, showing the principal and interest separately.
- File ITR: Fill in the Section 80E column in ITR-1 or ITR-2 along with Form 16.
- Deadline: Up to 8 years, starting from the year the loan was repaid.
If you are salaried, submit Form 12BA to get the TDS deduction from your employer. ICICI Prudential Life states that the certificate must clearly state the interest for the financial year, otherwise the claim may be rejected. Easily upload it on the online portal incometax.gov.in.
Other Related Benefits: What else?
In addition to Section 80E, deductions of up to ₹1.5 lakh can be claimed on tuition fees under Section 80C, but this is separate from the loan. Section 80E also applies to foreign loans, as mentioned in a report by Leap Finance. Note that there were no major changes in the 2025-26 budget, but always check the latest updates.
Cautions and Tips: Don’t Repeat Mistakes
- Claim interest only for the financial year it was paid.
- Choose the old tax regime, as there are no deductions in the new one.
- If the loan lasts more than 8 years, there’s no benefit on additional interest.
- Tax2Win’s advice: Always keep digital records to avoid audit problems.
These small steps can double your savings.
Conclusion: Take action now
Friends, education loan tax benefits aren’t just a deduction, but an investment in your future. If you or your child are considering a loan, talk to your bank today and start tax planning.
This will not only ease the burden of education but also provide financial independence. If you have any questions, ask in the comments – we’re with you every step of the way. Thank you!