Details of Section 80E | Deduction on Education Loan

Section 80E : Tax Deduction on Education Loan

Details of Section 80E | Deduction on Education Loan

Section 80E Interest on Education Loan

Introduction

In this article, we are going to explain the tax deduction under Section 80E. This section can be utilised to avail tax benefit available for education loan.

Section 80E | Income Tax Deduction on Education Loan

  • Thus, Section 80E provides a deduction in respect of interest on loan taken for higher education.
  • The loan taken for higher education would include following major expenses :
    1. Tuition fees for the course proposed to be undertaken
    2. Travel expenses (applicable especially in case of courses outside India)
    3. Expenses towards Lodging
    4. Expenses towards Study material and instruments like a laptop which may be mandatory for the course
  • In short, Education loan is a cost-effective tool to support the higher education of the students. Most of the banks and financial institutions provide educational loans.
  • One can claim deduction of interest on Educational Loan in his Income Tax Return
Section 80E : Tax Deduction on Education Loan
Section 80E Deduction on Education Loan

Eligibility

A. WHO CAN CLAIM DEDUCTION UNDER SECTION 80E?
  • Deduction under this section can be claimed only by an individual who has taken a loan for higher education and paying interest on the same. It cannot claimed by an HUF, company, trusts or partnership firm.
  • Till FY 2006-07, the deduction under this section was limited to loan taken by the assessee himself. However it was then modified to also apply to loans taken:
    1. For self
    2. Spouse
    3. Children of the assessee, including adopted children.
    4. For any student for whom the assessee is the legal guardian
  • Although, the loan can be availed for education of the individual or his relative, 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.
B. Which Courses are covered under ‘Higher Education’?

Section 80E provides for deduction in respect of loan taken for higher education. It may be noted that the section applies to ‘higher education’ and not on any loan taken for school admissions.

  • Courses taken up after completing Class 12 Examination like Senior Secondary or its equivalent.
  • The university/board should be the one approved by local authority or the state or central government.
  • The deduction under Section 80E can be availed only for full-time courses. Loan taken for post graduate courses in medicine, management, engineering, applied science, etc. are covered under Section 80E.
  • However, loan taken for part-time courses are not included under Section 80E.
  • It covers vocational courses taken up after the completion of senior secondary examination.
  • Courses undertaken outside India also fall under the purview of the meaning of ‘higher education’, if taken up after completing senior secondary examination.
C. Not all education loans qualify for tax deduction
  • The tax deduction available under Section 80E is applies only to education loans availed from banks, financial institutions notified under the Income Tax Act and approved charitable institutions.
  • You cannot claim tax deduction on funds borrowed from family members or friends for higher education.
  • Similarly, not all NBFC education loans will qualify for tax deduction. Only those education loans availed from NBFCs notified by the central government through official Gazette as a ‘Financial Institution’ for the purpose of education loan tax deduction will qualify for the deduction.
  • This is especially relevant as banks are increasingly getting cautious with education loans due to the rising non-performing assets in the segment. Since the NBFCs are aggressively pushing to fill in this gap, students may get education loans from NBFCs with relative ease. Hence, to ensure that you do not miss out on the Section 80E tax deduction later, check out whether that NBFC has been notified as such through the official Gazette.

Tax Benefit – Deduction under Section 80E

  • The amount of deduction that can be claimed under Section 80E is the interest paid on education loan.
  • Thus, There is ‘no cap’ or no upper limit on the amount of interest that can be claimed as deduction. The deduction is available to the extent of interest paid on loan for higher education, in the financial year.
  • Deduction is available irrespective of the rate of interest that is charged on this loan. Also, the deduction under Section 80E can be availed irrespective of the amount of loan amount.
  • Please note that principal component does not qualify for tax deduction u/s 80E. Only the interest component of education loan EMI qualifies for tax deduction under Section 80E.
  • The lack of tax deduction for principal repayment in education loan has been somewhat compensated by the absence of an upper cap on claiming tax deduction on interest payment.

Tenure for Deduction u/s 80E

  • Deduction of interest on education loan can be claimed for –
    1. Either 8 years, from the year in which the repayment of loan is started
    2. Or The period up to which repayment of interest is made, whichever is earlier.
  • It means the tax benefit can be taken for a maximum period of 8 years.
  • Period of 8 years starts from the year in which repayment of loan is started. Thus, Date of obtaining loan is not relevant.

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