5 things to know about tax benefits on Education Loans in 2022

Pursuing higher education in India or abroad can involve considerable expense. Irrespective of the course you choose, you may need several lakhs of rupees in one go. If you don’t have the requisite finances or don’t wish to break your investments, you can avail of an education loan to fund your higher education costs.

Apart from funding your higher education costs, an education loan offers excellent tax benefits. No matter if you are a student or a parent, you can reduce your taxable income by availing of tax deductions under Section 80E of the Income Tax Act, 1961.

Here are some important things you need to know about education loan tax benefits in India.

Eligibility

According to income tax rules, education loan tax exemptions are available only for individual borrowers. It means you cannot claim the deduction if you have taken a joint education loan. You can claim the tax benefits on an education loan if:

• You have taken the loan for your son or daughter
• You have taken the loan for yourself
• You have taken the loan for your spouse
• You are a legal guardian of the person for whom the loan is taken

Purpose of the loan

To be eligible to claim tax deductions under Section 80E, the loan must be taken only to pursue higher education in India or abroad. Any loan taken for any other purpose will not qualify for Income Tax benefits under the abovementioned section of the IT Act. 

‘Higher studies’ refer to any full-time course that can be pursued after passing the senior secondary exam or its equivalent. It can also include any post-graduation degree or vocational course.

Deduction amount

The income tax rebate on education loan is available only for the repayment of the interest component of the loan. No tax benefits are available for the principal component of the loan. You can claim the entire interest amount paid by you against your education loan in a given financial year. There is no upper limit on the education loan income tax benefit that you can avail of under Section 80E.

Tax deduction period

Education loan income tax benefits are available only for a certain period. You can claim the education loan tax deductions from the year in which you start paying the EMIs, for a maximum of eight years. This means if you’ve taken your education loan for ten years, you can claim the deductions for up to eight years only. No tax benefits would be available after that.

Source of finance

You can benefit from tax deductibles under Section 80E only if you’ve taken an education loan from a recognized bank or a non-banking financial company (NBFC). So, you will not be able to claim any tax benefits if you take a loan from a friend or a relative to pursue your higher education

Conclusion

An education loan can help you finance your higher education and reduce your taxable income. However, you should remember the above-mentioned points while claiming education loan income tax benefits.

You can apply for an IDFC FIRST Bank Education Loan online through the FIRST Uni app (android only). This app enables you to explore various colleges, courses, and scholarships that can help you pursue your dream. You also get personalized support through a buddy and can connect with expert counsellors for writing SOPs, building Resumes, test-preparations, and a lot more.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.