Section 80E: Deduction for Interest on Education Loan

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Section 80E: Tax Exemption on Interest on Education Loan

Section 80E: Tax Exemption on Interest on Education Loan
  • 28th Nov 2019 |
  • 5,186

​Demographically, India has one of the biggest youth populations combined with a large number of educational institutions. As the economy continues to grow and incomes increase, spending on education is also witnessing a boost. Education expenses account for the second-highest category in a middle-class Indian household. Several people opt for education loans to fund studies, and Section 80E of the Income Tax Act, 1961 helps you reduce your taxes when you opt for such a loan.

Section 80E of the Income Tax Act

According to this section, the interest paid during the financial year on the education loan is eligible for tax benefits. The income tax deduction under Section 80E may be claimed for education loans taken for self, spouse, children, and any students for whom you are a legal guardian.

The tax benefits under this section are available only on loans availed from a financial institution or a charitable trust. If you avail of a loan from your relative or friend and pay interest on the same, the 80E deduction benefits are not available.

Charitable institutions for this purpose include universities or educational institutes established for education purposes and are non-profit organizations. These may also include institutions or trusts, which are established for religious or charitable purposes, and are prescribed by the commissioner of Income Tax (Exemptions) or Director-General.

Deduction under Section 80E

Having understood what is Section 80E, you need to know that the benefits are available only on the interest component and not on the principal amount on the Equated Monthly Instalment (EMI). You may claim such deductions from the first repayment date and continue using the benefits for seven more years. This means the 80E deduction limits are available for a total period of eight years.

The meaning of higher education as per Section 80E

The section defines higher education as studies pursuant to the completion of the Senior Secondary Examination or its equivalent. Moreover, the board or the university must be state or government-approved. The course should be a full-time, or a vocational program taken up after the completion of the Senior Secondary Examination. Interest paid on an education loan availed for pursuing an international course after completing the Senior Secondary Examination is also eligible for benefits under this section.

Who can claim deduction u/s 80E?

Eligibility for tax deduction under Section 80E

The following are the eligibility conditions for receiving an income tax deduction under Section 80E of the Income Tax Act of 1961:

  • This tax deduction is available solely to individuals; firms and Hindu Undivided Families (HUF) are not eligible. Furthermore, loans from relatives and friends are not eligible for the advantage under this section of the Income Tax Act.
  • Only the interest paid on an education loan is eligible for the Section 80E Income Tax Deduction.
  • This deduction is available to both parents and children. This means that the individual repaying the education loan, whether a kid or a parent, is eligible for the deduction.
  • The deduction is only applicable for loans used for higher education.
  • The Income Tax Exemption under Section 80E is available exclusively to the individual who takes the loan and is required to pay the taxes.

The permitted deduction is the total interest on the EMI paid in a fiscal year. There is no cap on the maximum deduction amount, but an individual must obtain a certificate from their bank to do so. This certificate should provide separate descriptions of the interest rate and principal amount of the education loan for that fiscal year. In this case, there will be no tax benefit for the principal amount; instead, the interest will be eligible.

The quantum of deduction under Section 80E

The section 80E income tax benefit is available only on the interest paid on the education loan. However, there is no upper limit on the amount that may be claimed during the eligible period. You need to procure a certificate from your lender to claim the deduction. It must clearly show the principal and the interest components within the EMI. The interest paid on the education loan must be through your income during the financial year.

Documents required to claim tax deduction under Section 80E

The following document is necessary to claim the tax deduction under Section 80E of the Income Tax Act of 1961:

  • An individual must obtain a certificate from the recognised bank or financial institution or charity institute from which the loan is obtained.
  • This certificate must have separate sections for the principal and interest amounts of the education loan taken out for the fiscal year.

The benefit is available for a period of eight assessment years under the assumption that the course would be complete, and the loan would be repaid within this time. Often, education loans may provide a moratorium of six months to one-year post completion of the course. Therefore, repayment may commence only after the end of the moratorium period. In such cases, the benefits will be available from the assessment year when the first repayment is made and seven additional years.

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