Studying abroad can be expensive. Between tuition fees, living costs, and travel, students and parents often end up spending lakhs or even crores of rupees. But did you know that some of these expenses can help you save on taxes?
In this article, we’ll explore how Indian students and their families can legally reduce their tax burden using various tax exemptions, deductions, and smart planning—especially when funding overseas education.
Let’s break it down step-by-step.
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Why Consider Tax Saving for Foreign Education?
Higher education abroad often costs ₹20–60 lakhs or more. This includes tuition fees, rent, transportation, insurance, and more. With such a large investment, it makes sense to explore every possible way to reduce the financial burden.
Fortunately, the Indian Income Tax Act provides a few helpful deductions—especially if you are taking an education loan to fund your studies.
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Tax Benefits Under Section 80E
Section 80E of the Income Tax Act is the most important tax benefit for foreign education.
What is Section 80E?
Section 80E allows you to claim a deduction on the interest paid on your education loan. This is applicable for loans taken for higher studies in India or abroad.
- You can claim this deduction for up to 8 years (starting from the year you begin repaying the loan).
- There is no upper limit on the interest amount you can claim.
- The principal repayment does not get tax benefits—only the interest part does.
Example:
If your education loan interest in a year is ₹2.5 lakhs, and your income is ₹10 lakhs, your taxable income reduces to ₹7.5 lakhs.
Who Can Claim?
- You (the student) or your parents/legal guardians can claim it.
- The loan must be taken from a financial institution or approved charitable trust.
- Loans from friends or relatives are not eligible.
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Which Expenses Qualify for Tax Savings?
While only education loan interest is tax-deductible under 80E, there are ways to structure your expenses for additional savings.
Tuition and Fees
If you are sponsoring a child’s education and they are still considered a dependent, you can use:
- Section 80C for tuition fee deduction (only for up to ₹1.5 lakh per year for up to two children, and only if the institution is in India).
- For abroad studies, this benefit isn’t directly applicable under 80C, but you can use other means like loan-based funding.
Foreign Exchange & Remittance Charges
When you send money abroad (under the LRS – Liberalized Remittance Scheme), the government applies TCS (Tax Collected at Source). But this can be claimed back while filing your income tax return.
- For amounts above ₹7 lakh, a 5% TCS is applied.
- This TCS is not a tax—it can be adjusted in your final tax return.
So, keep a record of all foreign remittance receipts and claim them back while filing ITR.
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Claiming TCS Refund on Foreign Remittances
If your bank deducts TCS while transferring education fees to a foreign university, you can adjust this amount in your tax return.
Steps to claim TCS:
- Log into your income tax portal.
- Download Form 26AS to see how much TCS has been collected.
- Mention this amount while filing your income tax return.
- If your final tax liability is less, the excess TCS will be refunded.
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Additional Deductions for Parents
If parents are taking the loan and paying the interest, they can claim the Section 80E deduction—even if the student is studying abroad.
Also, parents who are self-employed or salaried professionals can use this to lower their annual taxable income by a significant amount.
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Tips to Maximize Tax Savings
Here are a few tips to get the most benefit:
- Always take education loans from authorized banks or NBFCs.
- Maintain proper receipts and documentation for tuition, hostel rent, and other payments.
- Use the TCS credit while filing ITR on time.
- If your income is below the taxable limit, you might not benefit from 80E—but your parents can.
- Avoid using personal loans or private borrowing if you want tax benefits.
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Education Loan Providers Offering 80E Eligibility
Here are top Indian banks offering tax-eligible education loans:
- State Bank of India (SBI Global Ed-Vantage)
- HDFC Credila
- Axis Bank
- Bank of Baroda
- ICICI Bank
Make sure the bank provides proper documentation to claim tax benefits.
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Common Mistakes to Avoid
- Taking loan from an unauthorized source (no 80E benefit)
- Missing deadlines for tax filing and TCS claims
- Not maintaining payment proof or interest certificates
- Assuming tuition abroad is covered under Section 80C (it isn’t)
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Summary
| Tax Benefit | Applicable For | Limit |
|---|---|---|
| Section 80E | Interest on Education Loan | No upper limit |
| TCS Refund | Foreign remittance for study | Up to 5% refund |
| Section 80C | Only for tuition in Indian institutes | ₹1.5 lakh max |
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Final Thoughts
Studying abroad is a dream, but it comes with big expenses. By using smart tax planning tools like Section 80E and TCS refunds, you can save thousands—sometimes lakhs—of rupees each year.
Speak with a financial advisor or a tax planner to structure your funds correctly before applying for your loan or sending money abroad.