Section 80E of Income Tax Act, 1961 (Deduction of Interest on Educational Loan) By CS Annu Sharma


Dear Folks,

As per the provision of section 80C deduction can be claimed for tuition fees paid to university, school, college or other educational institution situated in India but  if a person takes educational loan for himself, spouse or children for higher education from bank or financial institution, etc. he will get deduction for interest on such a loan for 8 years under section 80 E of Income Tax Act In my write up I have  took up some important points of Section E 80E of Income Tax Act, 1961 with a quick review.

An education loan can not only fund your higher studies but also help save tax. The interest paid on the education loan can be claimed as deduction, as per Section 80E of the Income Tax Act, 1961.This deduction under section 80E for Interest on Education Loans is over and above the Rs 1,50,000 deduction allowed under section 80E of Income Tax Act, 1961.

Only an individual can claim this deduction. It is not available to HUF or any other kind of taxpayer. And the loan should be taken for the higher education of self, spouse or children or the student for whom the individual is a legal guardian. Thus parents can easily claim this deduction for the loan taken for the higher studies of their children.

Who Can Claim deduction under section 80E

ONLY Individuals

Not available to HUF or any other person

The purpose of the loan

To pursue higher studies in India or outside India

 

From where the loan should be taken

From Any Bank / financial institution or any approved charitable institutions

Loans taken from friends or relatives and loan taken from any financial institution outside India don’t qualify for the deduction under section 80E

Meaning of Higher studies

It includes both the Vocational courses as well as the regular courses pursued after passing the senior secondary examination or its equivalent exam.

 

The deduction allowed if loan is taken for

Higher education of self, spouse or children or the student for whom the individual is a legal guardian

Loan taken for siblings (brother/sister) or other relatives (in-laws, nephew, niece, etc.) would not qualify for section 80E benefit.

Deduction Amount

Total interest paid during the financial year. No limit on the maximum amount of deduction under section 80E

No Tax benefit is allowed for the principal repayment

Period of Deduction:

It is available from the year in which individual starts paying interest on loan and in 7 succeeding years.

Deduction is allowed for maximum period of 8 years or until the interest is repaid in full, whichever is earlier.

 
 
# Some important facts about Deduction of Interest on Education Loan under Section 80E of Income Tax Act, 1961.
 
1. Remember, the deduction can be claimed by an individual only if the loan has been taken in his/her name.

2. This special deduction is also allowed even for education loan availed for study abroad.
 
3. Under the earlier provisions, the deduction on education loan was available only for pursuing full-time studies for any graduate or post-graduate course in engineering, medicine, management or for a post-graduate course in applied sciences or pure sciences including mathematics and statistics. However, the list has been expanded to even include vocational studies now. It now covers "all fields of studies (including vocational studies) pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognized by the Central Government or State Government or local authority or by any other authority authorized by the Central Government or State Government or local authority to do so".
 
4. The deduction on education can be claimed only when you start the repayment and is available up to eight years, or until the payment of interest in full, whichever is earlier. This means, if you repay the loan within, say, five years, you can claim a deduction only till such period.
 
5. Most education loans come with a moratorium period during which you opt not to service the loan. This period is usually until one year after the completion of the course or six months after the student gets a job, whichever is earlier. Accrued interest during the moratorium gets added to the principal and repayment in EMIs gets fixed. If you opt to pay interest during the moratorium period, it gets included while calculating the time limit of eight years.
 
6. "higher education" means any course of study pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognized by the Central Government or State Government or local authority or by any other authority authorized by the Central Government or State Government or local authority to do so;
 
7. To avail tax benefits on education loan, you should inform your company's HR/accounts department so that less TDS is deducted from your salary. Else, you can claim it by filing tax returns.
 
Every parent struggles to give their child a good education. They make provisions for that according to their income capacity. At that time provisions of Income Tax are not considered. But while filling return of income, the taxpayer should take all possible deductions.

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