How to elevate education loan savings through Section 80E? MintGenie explains | Mint
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Business News/ Money / Personal Finance/  How to elevate education loan savings through Section 80E? MintGenie explains
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How to elevate education loan savings through Section 80E? MintGenie explains

Section 80E of the Income Tax Act offers a tax benefit for interest on higher education loans, applicable for eight years. The deduction is exclusive to individuals and requires documentation from recognized financial institutions.

Section 80E provides tax relief on interest payments for higher education loans.Premium
Section 80E provides tax relief on interest payments for higher education loans.

In recent years, the trend of seeking education at renowned international universities has been on the rise. In the United States, the count of Indian students hit an all-time high at 268,923 in 2022-23, demonstrating a 35% surge compared to the preceding year. 

A key element fueling this inclination is the simplified process within the contemporary educational landscape, making the financing of international education more feasible for parents and students through loans. Notably, Section 80E of the Indian Income Tax Act assumes significance in this context.

What is an 80E education loan deduction?

Section 80E of the Income Tax Act of 1961 offers a tax benefit for interest paid on loans for higher education. This deduction, applicable for eight years from the start of interest repayment, focuses solely on the interest and not the principal. While there's no specified maximum limit, it's vital to understand that the deduction pertains exclusively to the interest component of EMIs, excluding the principal amount.

Who can claim an education loan deduction?

The education loan deduction is exclusive to individuals seeking to claim deductions on the interest paid for higher education loans, barring Hindu Undivided Families (HUF) and other taxpayer categories. Eligibility requires the loan to be for the higher education expenses of the taxpayer, their spouse, or children. 

Legal guardians can also claim the deduction for loans supporting the higher education of their wards. Notably, this provision does not extend to entities beyond individual taxpayers, ensuring a targeted scope for those benefiting from the deduction.

To avail of Section 80E exemptions, individuals must fulfil the criteria for claiming the interest component of an education loan as a deduction. This provision applies exclusively to loans obtained from recognized financial institutions, rendering those from friends and family ineligible. The documentation essential for seeking Section 80E exemption includes a loan sanction letter, a certificate from the lending institution delineating the principal and interest repayment, and an education loan repayment statement. 

Interestingly, no immediate submission of these documents is mandatory for Section 80E tax deduction during the process of filing income tax returns. However, prudence dictates that individuals maintain these documents for potential scrutiny by the income tax department in the future.

In conclusion, the surge in Indian students pursuing education abroad is propelled by the simplified financing process, with Section 80E of the Income Tax Act playing a pivotal role. This section provides a crucial tax benefit for interest on higher education loans, offering financial relief without a specified maximum limit. 

As the trend continues, understanding and utilising Section 80E exemptions become imperative, requiring proper documentation for potential scrutiny to contribute to a seamless education financing landscape.

Amit Singh, Founder UniCreds, Extended arm of UniScholars

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Published: 30 Nov 2023, 01:41 PM IST
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