In India, an education loan is more than a financial aid for students and their parents. This loan is a pathway to higher education and also for better opportunities. One of the biggest reliefs for borrowers is the tax deduction available under Section 80E of the Income Tax Act, which also allows for the interest paid on the education loans to be deducted from taxable income.
With the introduction of the GST 2.0 in 2025, many still ask: Will these reforms change the way education loan tax benefits under Section 80E are calculated? Let us break it down for you and make it easier for you to understand the implications of GST 2.0
Understanding Section 80E: Tax Benefits for Education Loans
Under Section 80E, provide tax reliefs to individuals who have taken education loans for themselves, their spouse, children or dependents.
- What’s Deductible? Only the interest portion of the EMI is deductible and not the principal amount.
- Tenure of Benefit: The deduction is only available for a maximum period of 8 years or until the interest is fully paid.
- No Cap on Amount: Unlike the many other deductions, Section 80E does not impose a maximum claim limit.
This provision has helped to encourage the students and their families to borrow money for a higher education without being overburdened by tax liabilities.
GST and Education Loans: The Link
GST is not applicable to the loan principal or interest. Instead, it is applied to the associated services, such as:
- The processing fees charged by banks and NBFCs.
- All the administrative or legal charges.
- Value-added services bundled with education loans.
Earlier, under the GST 1.0, these services were only taxed at 18%, which was indirectly increasing the overall cost of borrowing. Now with GST 2.0, the amendments made now have eased this burden by lowering or exception of GST on certain education-related financial services.
GST Effect on Section 80E: Will Benefits Change?
Section 80E deductions are only applied and linked to the interest paid on the education loan, not to the GST charged on fees or services.
This means:
- The tax deduction remains unchanged under GST 2.0.
- Borrowers can still claim the full interest amount as a deduction, whether GST is charged on ancillary costs or not.
- Any savings due to GST 2.0 reforms like the reduced or exempted fee, simply reduction of the overall loan cost but do not affect Section 80E directly.
In short, GST 2.0 does not actually reduce or limit Section 80E benefits. Instead, it makes education loans slightly cheaper by cutting extra costs.
Example: Education Loan Costs & Section 80E
Let us take a practical case study as an example to simplify the understanding of GST effects on Education Loan:
| Particulars | Before GST 2.0 | After GST 2.0 |
| Loan Amount | ₹10,00,000 | ₹10,00,000 |
| Processing Fee (1%) | ₹10,000 | ₹10,000 |
| GST on Fee | ₹1,800 | Nil (exempted under GST 2.0) |
| Total Initial Cost | ₹11,800 | ₹10,000 |
| Annual Interest Paid (eligible under 80E) | ₹1,00,000 | ₹1,00,000 |
| Deduction under Section 80E | ₹1,00,000 | ₹1,00,000 |
Explanation: Under the Section 80E, deduction of INR 1,00,000 will remain the same even before and after GST 2.0. However, after the implication of GST 2.0, the loan borrowers can now save INR 1800 upfront on the processing cists because of GST exemption applies.
GST 2.0 80E Deduction: What Borrowers Should Note
- Tax Savings Stay Intact – The borrowers should continue to enjoy a full tax deduction on the education loan interest under Section 80E.
- Lower Loan Costs – The ancillary charges like the processing fees are lighter under the GST 2.0 making the education loan more affordable.
- Better Access to Credit – The lower upfront charges may also encourage mores students to apply for loans for their higher education. This phenomenon is generally seen in the middle-income households.
- No Change in Deduction Process – The way you claim Section 80E remains unchanged. You can then provide these loan certificates to your bank/NBFC and then file it with your annual ITR.
Tax Saving Education Loan GST: The Bigger Picture
While the GST impact on the student tax benefits is minimum, the reforms are aligned with India’s broader push for an affordable higher education financing. By decreasing the cost burden of the GST on loan-related services, the students can also allocate more resources towards their studies.
In the years to come, these considerations could improve:
- Gross Enrolment Ratios (GER) in higher education.
- Access to global universities for Indian students.
- Financial discipline among young borrowers.
Final Thoughts
Hence, the big doubtful question, “Will GST 2.0 affect the education loan tax benefits under Section 80E”, it has a clear answer to it: No, the new GST 2.0 tax deduction remains unchanged.
Thanks to GST 2.0 and its reform, you will likely spend less on the processing and ancillary fees, which helps in reducing the total borrowing cost. This makes education loans more accessible and student-friendly without having to compromise on the 80E deduction advantage.
So, whether you are a student who is planning to study abroad or in India, be assured that your education loan tax benefits, GST reforms will remain intact, while your loan cost may get a little lighter under the new GST 2.0.
