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Section 80E of the Indian Income Tax Act
Navigating the complex landscape of overseas education proves challenging, particularly in terms of funding. A growing number of students and their families turn to student loans amid rising living costs and tuition fees. However, the strain of repayment adds significant pressure for graduates entering a job market marked by uncertainties or economic downturns.
Section 80E of the Indian Income Tax Act becomes relevant, enhancing the savings on student loans and offering much-needed support.The Income Tax Act’s Section 80E contains a clause that enables borrowers to deduct the interest paid on their student loans. This deduction might give the borrower financial relief by drastically lowering their tax obligation.
Section 80E tax exemption limits
There is no upper bound regarding tax exemption, while the maximum allowable deduction is for the interest paid on a loan taken out for postsecondary study. This deduction can be utilized for a maximum of eight years, or until the interest is paid in full, whichever occurs sooner.
Understanding Section 80E tax deduction
People are eligible for a deduction on the entire interest portion of the Equated Monthly Instalments (EMIs) they pay each financial year for their school loans. Deduction from the total amount does not have an upper limit.
Individuals must, however, have a certificate from their bank that explicitly separates the principle and interest part of any student loans they paid for the year in order to be eligible for this deduction.
There is no tax benefit associated with principal repayment; only the entire amount of interest paid is deductible. People can lessen their tax liability and taxable income by taking this deduction.
There is a Section 80E deduction available to individuals for student loans. If a taxpayer, their spouse, or their children takes out a loan for higher education, they are particularly eligible to deduct the interest portion of the loan. But this deduction isn’t available to businesses or Hindu Undivided Families (HUFs).
Crucially, the loan cannot come from friends or family; rather, it must come from reputable financial institutions or nonprofit groups. Moreover, there is an 8-year maximum deduction term. In general, the purpose of this deduction is to give people financial assistance when they enroll themselves or a family member in higher education.