Section 80E of the Income Tax Act allows a tax deduction on the interest paid on education loans for higher studies.
Section 80E deduction helps to reduce the financial burden of education loans by lowering the taxable income of the borrower.
Conditions on deduction
The individuals can claim this deduction on interest on an education loan taken for
- self, spouse, children, and a person for whom the assessee is legal guardian.
- can be claimed only if the loan is taken for higher education purpose in India or outside India
- only the loans availed from recognized charitable institutions or registered financial institutions.
When deduction u/s 80E are not allowed?
- Deductions will be not allowed if loan is taken from family member or relatives.
- Education loan taken from any financial institutions outside India would also not be allowed to be claimed as a deduction.
- It is not available for HUF and companies.
Nature of deduction
The deduction allowed u/s 80E of Chapter VI-A is only for the repayment of the interest on education loan and not for the purpose of repayment of Principal Amount.
Maximum limit available u/s 80E
There is no maximum limit for claiming this deduction under section 80E.
Time limit
The deduction for interest on loan starts from the year in which you begin repaying the loan.
It is available only for 8 years starting from the year in which you begin repaying the loan or until the interest is fully repaid whichever is earlier.
For example
Case 1 : If you have taken loan and you complete repayment of your loan in 6 years, then tax deduction will be allowed for 6 years not 8 years.
Case 2 : If your loan repayment period is for 10 years, then you can claim the deduction for the first 8 years. The remaining 2 years won’t qualify for the deduction.
Documents Required
You need to obtain a certificate from your bank. Such certificate should separates the principal and the interest portion of the education loan paid by you during the financial year.
What is meant by higher studies?
Higher studies means any regular course pursued after clearing the senior secondary exam.
The course must be from a school, board, or university recognized by the Central or State Government, or by an authority authorized by them.
Calculation for deductions under section 80E
Let us assume that Ajay’s monthly income is Rs. 65,000 per month.
He has taken a loan for his son which he paid interest during the year is Rs 60,000.
He has also invested in PPF, NSC, LCI during the financial year approx Rs 1,55,000.
So, what will be the taxable income after the deduction under Section 80E?
Solutions
| Particulars | Amount (in Rs.) |
| Gross Total Income | 7,80,000 |
| Deductions under Section 80C | 1,50,000 |
| Net Total Income | 6,30,000 |
| Deductions under Section 80E | 60,000 |
| Taxable Income | 5,70,000 |
FAQs
Yes, you can claim both the benefits.
No, Section 80E is not part of Section 80C.
1. Section 80C allows claiming deduction for tuition fees paid for education.
2. Section 80E provides a deduction for the interest paid on educational loans taken for higher studies.
To apply for an education loan, a student needs to submit:
1. Completed application form with two passport-sized photos
2. Residential address proof
3. Education certificates (12th mark sheet or UG mark sheet)
4. Admission letter from the university
5. PAN card details and income proof of the parent/guardian