Income Tax Deduction under Section 80E

As per section 80E of the income tax act, 1961 – Any individual can claim deduction on the interest paid on education loan to pursue higher studies after passing senior secondary examination or its equivalent from any board, school or university.

You can only claim deduction on the interest part of your EMI. Any individual who has taken loan for higher studies in India or abroad is eligible for deduction under section 80E of the income tax act. Education Loan taken by an individual not only helps in financing your studies but helps in saving your taxes too.

As you know, the cost of studying abroad is higher in comparison to cost of pursuing higher studies in India. For applying courses in International universities, you need to spend money on hefty tuition fees, travel expense, accommodation expense, mandatory study material electronic gadgets like smartphone & laptop etc. Apart from tuition fees, expenses of maximum other things are borne by the student.

Section 80E: Income Tax Deduction or Interest on Education Loan

Purpose of the Education Loan

The main purpose or objective of providing education loan under section 80E of the income tax act is to offer required amount of money to the students so that they can pursue higher studies in India or abroad without any hassle. Before going further, we must understand the meaning of higher studies. Higher studies comprises of any of the courses pursued after completion of senior secondary examination or its equivalent. It includes both regular and vocational courses.

Who are eligible to claim deduction under Section 80E?

  1. Only individuals are eligible to claim deduction under section 80E.
  2. The loan can be availed to pursue higher education for self, spouse, children or student for whom the legal guardian has been appointed by the court.
  3. This deduction can easily be claimed by parents on the loan taken for the higher studies of their children.

Who are not eligible to claim deduction under Section 80E?

  1. An HUF or any other company cannot avail deduction under section 80E of the income tax act. Only individuals are eligible.
  2. Any loan taken by you from your relatives or friends are also not eligible for deduction under section 80E.

Eligibility criteria for tax deduction under Section 80E

  1. Only individuals are eligible for tax deduction under section 80E. HUF’s or any other company cannot avail this deduction.
  2. This deduction can be claimed by parents as well as child.
  3. This deduction can only be availed on interest component of the loan.
  4. This deduction can only be claimed if you are taking loan for higher education.
  5. This deduction can only be claimed for maximum 8 years. After completion of 8 years tenure, you cannot avail deduction for the same.
  6. This deduction can only be taken by the individual under his/her own name.

From where you need to take the education loan?

In order to get eligible for deduction under section 80E of the income tax act, you must take loan from any bank/registered financial institution/approved charitable institution. Education loan availed from any financial institution outside India will not be considered eligible for deduction.

How much income tax deduction is allowed under section 80E?

Every individual applied for loan will get deduction of total amount of interest paid by him/her in a financial year. There is no upper limit specified for the amount of deduction. You can get benefit by claiming entire amount of interest spent by you in a financial year but it is not applicable on the Principal amount.

The best thing about section 80E is that you can avail deduction under section 80E even if you have already availed the maximum available deduction of Rs.150000 under section 80C.

What is the deduction period under Section 80E?

The maximum period allowed for claiming deduction under section 80E is 8 years or until the full interest is repaid (whichever is earlier). For ex – In case you have fully paid the loan in 5 years, then you can claim deduction for 5 years only not for 8 years.

In case if your loan payment period exceeds 8 years, then you are not allowed to avail the deduction beyond 8 years. Therefore, it is recommended that you must pay your education loan within 8 years to avail the tax benefit.

Looking for any help in income tax return filing, kindly call us at 8800221252 or you can also e-mail us at info@finacbooks.com

Share this post

CONNECT WITH US

Reviews

We value client relationships and making it better with each passing day.

Rated 4.5 out of 5 based on 1,234 reviews on FinacBooks Logo


Sign up to our

Newsletter

Tax news for chartered accountants, businesses and individual.