All Education Loans do not get Income Tax benefits

Pursuing higher education often necessitates substantial financial investment, leading many individuals to opt for education loans. To alleviate the financial burden, the Indian Income Tax Act provides tax benefits under Section 80E for those repaying education loans. This article delves into the specifics of Section 80E, outlining the eligibility criteria, scope of deduction, and other pertinent details.

Understanding Section 80E:
Section 80E of the Income Tax Act, 1961, offers a tax deduction on the interest paid towards education loans. This incentive aims to encourage higher education by providing financial relief during the loan repayment period.

Key Features of Section 80E
1. Eligible Borrowers: The deduction is available to individuals who have taken an education loan for themselves, their spouse, children, or a student for whom they are a legal guardian. Notably, Hindu Undivided Families (HUFs) and companies cannot avail of this benefit.
2. Purpose of the Loan: The loan must be taken solely for pursuing higher education, which includes any course of study after completing the Senior Secondary Examination (Class 12) or its equivalent. This encompasses graduate and postgraduate programs in various fields such as engineering, medicine, management, and other professional courses, whether undertaken in India or abroad.
3. Approved Lenders: To qualify for the deduction, the loan should be obtained from a financial institution or a charitable organization recognized under the law. Loans from friends, relatives, or unrecognized institutions do not qualify for this deduction.
4. Extent of Deduction: There is no upper limit on the amount of interest that can be claimed as a deduction under Section 80E. However, the deduction is applicable only to the interest component of the loan repayment, not the principal amount.
5. Deduction Period: The deduction is available for a maximum of eight consecutive years starting from the year in which the repayment of loan begins, or until the loan is fully paid, whichever occurs earlier.

Claiming the Deduction
To claim the deduction under Section 80E, taxpayers should maintain proper documentation, including:
• Loan sanction letter from the recognized financial institution or charitable organization.
• A statement or certificate from the lender detailing the breakup of principal and interest paid during the financial year.
These documents should be retained as evidence and provided during tax filing to substantiate the claim.
Lenders’ eligibility for 80E benefits
For most students, banks are the first choice for an education loan, mostly because their interest rates are lower than that of a non-banking financial company (NBFC).

However, according to the Crif Highmark report, non-performing assets in education loan segment are rising; so, the banks are now more careful in giving out these loans. At the same time, many NBFCs are trying to get a share of this market. A student who may find it difficult to get the loan from a bank, could get it with relative ease from an NBFC, though at a higher rate of interest.
But here is the catch. Section 80E of the Income-tax Act specifies that it is applicable only to specified financial institutions, including banks and “any other financial institution which the Central Government may, by notification in the Official Gazette, specify in this behalf.” This means that while education loans from all banks can provide you this benefit, loans from NBFCs may or may not.
The best way to know whether an education loan from an NBFC will let you avail 80E benefits, is to ask for a copy of the income-tax department’s notification specifying that the particular NBFC is eligible. You can cross-verify this notification from the Gazette of India, which can be viewed online on egazette.nic.in, or by going to https://www.incometaxindia.gov.in/pages/communications.
Remember that loans from NBFCs are relatively more expensive than those from banks. Without the 80E benefits, a loan from a non-specified NBFC would end up costing you much more.
Any assistance or guidance needed in relation to Income Tax E-filing or any other matters, please reach out to us at contact@msassociates.pro