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Income Tax Deduction Under Section 80E

Given the rising cost of higher studies, we end up spending a considerable amount of savings to meet the same. If you intend to take a loan for pursuing higher studies in India or abroad, you can claim a deduction under section 80E of the Income Tax Act 1961, which caters specifically to educational loans.

For students studying abroad in international universities, the expenses are higher as compared to India. Apart from the hefty tuition fee for the course, expenses towards travel, residence, mandatory study material instruments such as laptop and smartphone are borne by the student.

Hence, section 80E was introduced to give some relief to taxpayers incurring high education expenses and need to avail loan for meeting these expenses. Section 80E provides deduction in respect of interest on loan taken for higher education.

Section 80E Income Tax Deduction or Interest on Education Loan

To elaborate further, an education loan taken on behalf of your spouse, children, adopted children, student for whom the taxpayer is the legal guardian are applicable for deduction under section 80E.

Section 80E also mentions that this loan must be taken from a financial or charitable institution. Deduction under section 80E cannot be availed towards the interest paid to a relative or employer towards loan taken for higher education.

A financial institution refers to any bank operating as per the Banking Regulation Act, 1949 and is in the capacity to provide such a service. A charitable institution is any mentioned authority under the clause of 23C of Section 10. It can include any university or educational institution established solely for educational purpose, trusts or institutions established for charitable or religious purpose, institutions referred to under Section 80G.

Note: This deduction is applicable only for individuals. A Hindu undivided family (HUF) cannot make a claim for the same. Deduction under section 80E can neither be claimed by a corporate or a firm. The deduction can be claimed only by the individual who has availed the loan for this purpose and is responsible for repaying the same out of his income.

Tax Benefits of Education Loan on Foreign Studies Under Section 80E

Any individual who has applied for a loan for higher education can avail the benefits of tax saving provided by Section 80E of the Income Tax Act, 1961. Even if an individual has availed the maximum available deduction of INR. 1,50,000 under section 80C, they can still avail deduction under Section 80E.

Note: Section 80C provides for deduction in respect of tuition fees paid for education while Section 80E provides for deduction for the interest on loan taken for higher education.

Eligibility for Tax Deduction under Section 80E

  • Only individuals are eligible for tax deductions, Hindu undivided families (HUF) and companies cannot avail deductions under this section. Also, loans taken from friends or relatives are not eligible under this section.

  • Income Tax Deduction can be claimed only on the interest component.

  • The benefit can be claimed by the parent as well as the child, which means that the person who pays the education loan whether parent or child can start claiming this deduction.

  • Deduction can be claimed only if the loan is availed for purpose of higher education.

  • Deduction can be availed only for 8 years. You cannot claim for deductions beyond 8 years.

  • Deduction can be claimed only if the loan is taken under the name of taxpayer.

Claiming 80E Tax Deductions

The deduction amount under Section 80E is only the interest paid on the loan taken for higher studies. This amount has no upper limit, you can get tax benefit on the entire amount of interest paid but not on the principal amount. (Deduction under Section 80E can be availed irrespective of the amount of loan which can range from INR 1 lac to INR 20 lacs or even more).

The deduction under section 80E is allowed only if the education loan was taken for higher studies. Higher studies refers to education after completing the Senior Secondary Examination (SSE). It includes both the vocational courses as well as the regular courses in India or abroad. Thus, loan taken for post graduate courses in medicine, management, engineering, applied science, etc. are covered under Section 80E.

The deduction under section 80E can be claimed from the year in which you start paying interest on loan for higher education. If you have started paying interest within the same year of borrowing, then you can claim deduction for the payment of interest on this loan. The maximum period allowed to claim deduction is up to 8 years starting the year in which you start repaying the interest on the loan or till the time interest is paid fully, whichever is less.

Frequently Asked Questions

Who can claim 80E deduction?

Any individual who has applied for a loan for higher education can avail the benefits of tax saving provided by Section 80E of the Income Tax Act, 1961. An education loan taken on behalf of your spouse, children, adopted children, student for whom the assessee is the legal guardian are applicable for deduction under section 80E.

From where the loan should be taken?

Deduction can be claimed only if the loan is taken under the name of taxpayer and from a charitable or financial institution. A financial institution refers to any bank operating as per the Banking Regulation Act, 1949 and is in the capacity to provide such a service. A charitable institution is any mentioned authority under the clause of 23C of Section 10. It can include any university or educational institution established solely for education purpose, trusts or institutions established for charitable or religious purpose, institutions referred under Section 80G.

What is a qualified loan?

A qualified loan is a category of loans that have certain, more stable features that help make it more likely that you'll be able to afford your loan. If a bank loans you a qualified loan, it means that the bank has met certain requirements and it is assumed that the bank followed the ability-to-repay rule.

What is Section 80E in income tax?

The interest paid on the education loan can be claimed as deduction, as per Section 80E of the Income Tax Act of India, 1961.

How much deduction is allowed under 80E?

The deduction amount under Section 80E is only the interest paid on the loan taken for higher studies. This amount has no upper limit, you can get tax benefit on the entire amount of interest paid but not on the principal amount. (Deduction under Section 80E can be availed irrespective of the amount of loan amount which can range from INR 1 lac to INR 20 lacs or even more).

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