Deduction in respect of interest on loan taken for higher Education Section 80 E

An Education loan helps you to finance your studies (abroad or domestic) also helps to save taxes.

 

(i) Eligible assessee: Section 80E provides deduction to an individual assessee in respect of any interest on loan paid by him in the previous year out of his income chargeable to tax.

 

Analysis: Only an individual can claim this deduction. It is not available to HUF or any other kind of taxpayer.

 

(ii) Conditions: The loan must have been taken for the purpose of pursuing his higher education or for the purpose of higher education of his or her relative. The loan must have been taken from any financial institution or approved charitable institution.

 

Analysis:

1. The loan should be taken for higher studies, It does not matter whether such loan is taken for higher studies in India or outside India
2. Loans taken from friends or relatives don’t qualify for this deduction.
3. No limit to the Maximum Amount of Deduction under this section.
4. Multiples loans can be availed for his or her relative, interest paid on all the loans will be allowed as a deduction.

 

(iii) Meaning of Relative: Spouse and children of the individual or the student for whom the individual is the legal guardian.

 

(iv) Meaning of “Higher education”: It means any course of study (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. Therefore, interest on a loan taken for pursuing any course after Class XII or its equivalent will qualify for deduction under section 80E.

 

(v) Period of deduction: The deduction is allowed in computing the total income in respect of the initial assessment year (i.e. the assessment year relevant to the previous year, in which the assessee starts paying the interest on the loan) and seven assessment years immediately succeeding the initial assessment year or until the interest is paid in full by the assessee, whichever is earlier.

 

Analysis:

1. The deduction is allowable for only interest paid as per Bank Certificate, not for the principal amount.
2. Period of deduction starts from the year of repayment started and continued up to 8 years from the start year or until the interest is fully repaid whichever is earlier. In other words, if the interest amount paid before 8 years period then the deduction will stop in the same year because this deduction is only for interest paid. Vice versa if full interest not paid in 8 years then you cannot claim a deduction for the interest paid beyond 8 years. So it is better to plan your loan tenure accordingly to get the maximum benefit.

 

 

(vi)  Meaning of “Approved charitable institution”: It means an institution established for charitable purposes and approved by the prescribed authority or an institution referred to in section 80G(2)(a).

 

(vii) Meaning of “Financial institution”: It means –

 

• a banking company to which the Banking Regulation Act, 1949 applies (including a bank or banking institution referred to in section 51 of the Act); or
• any other financial institution which the Central Government may, by

notification in the Official Gazette, specify in this behalf.

 

Frequently Asked Questions (FAQ)

 

1. Higher education loan is taken for study in aboard covered under 80 E or not?

 

Yes, you can claim deduction under section 80E for aboard also.

 

2. Is Section 80E part of Section 80C?

No, both are separately allowed. Section 80C of the Income Tax Act provides deduction in respect of the tuition fees paid for the education. However, section 80E of the Income Tax Act provides deduction in respect of interest paid on educational loans taken for higher education.