Learn all about how you can pay no tax on education loan interest payment.
Are you paying interest on an education loan – do not forget to claim income tax deduction
Under Section 80E of Indian Income Tax Act, 1961, you can claim income tax deduction on the interest paid for an education loan as long as you have taken the loan for education of you or your spouse or your children.
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How do you claim it?
When you fill your Income tax return, you should declare the interest paid under “Deductions under chapter VI A (Section)” / “Section 80E”.
How does it work?
Once you compute your total taxable income, you can deduct the education loan’s interest amount. In effect you do not pay tax on the interest paid.
There is no limit. You can deduct the entire interest paid under Section 80E.
Loan for studying abroad
Yes, you can claim income tax even for education loan availed to study abroad.
Tax benefit on principal repayment
No, the tax benefit is only for interest payment.
Whose name should the loan be?
Loan has to be in your name and you should be the one who pays the interest.
Whose higher studies
Higher studies of you, your spouse or your children.
Cannot be for your siblings or other relatives.
When can you claim the benefit?
You can claim the benefit once you start repaying the loan. You can claim for maximum of 8 years.
Easy to understand examples to show the benefit
Example 1 : You paid 10000 interest on your education loan.
You do not have to pay tax on the 10000 interest.
Example 2: You took an education loan for your brother. Can you claim tax benefit?
Nope. The benefit is only available if you take a loan for higher studies of you, your spouse or children.
Example 3: You repay the loan by borrowing money from your dad.
Nope. The exemption is only available if you pay the interest from your income.
Example 4: You are paying the interest of education loan of your spouse. But the loan is in your spouse’s name. Can you claim tax benefit under Section 80E?
Nope. The loan has to be in your name and you have to pay the interest from your taxable income. Since the loan is in your spouse’s name and you are paying interest, neither of you can avail tax benefit.
Example 5: You started repaying the loan this year but did not claim tax benefit on the interest paid. Can you claim benefit on the sum interest paid during this year and the next year in the next year’s return?
Nope. You can only claim exemption for the interest paid in the last financial year. You cannot combine interest across years and claim exemption.
Hopefully you have learnt about the income tax benefit available to you when you pay education loan interest. If you have any doubts/comments, please leave a comment.