Tax Deductions under Section 80E

Education loans are a convenient and popular option for many, to meet the cost of higher education.  Did you also know that under Section 80E of the Income Tax Act, repayment of this education loan could be used to claim a deduction? Read on to find out, what this section offers and how to utilize it to your benefit.

Deduction in Respect to Repayment of Education Loan

If you have taken an education loan from any financial institution or an approved charitable institution, Section 80E provides a tax deduction on the loan interest that you are paying.

  • Who is Eligible?

Individual assesses only. So, if you are part of an HUF, this deduction cannot be claimed by you.

  • Deduction Limit

The entire interest paid on the education loan could be used to claim a deduction. There is no cap on the deduction amount. However, one needs to remember, that there is no tax benefit on the principal repayment of the loan.

  • Scope of Deduction

The loan should be taken for the sole purpose of higher education. It could either be for the individual, spouse or children. Loans for the higher education of siblings, in-laws, nephew or niece, will not qualify for any deduction. Also, from assessment year 2010-11, deduction could be claimed for the student for whom the individual or assessee is the legal guardian.

The education loan should be taken from either a financial institution or an approved charitable trust. Loans taken from friends, employer or relatives do not qualify for a deduction.

  • Courses Eligible for Deduction

From assessment year 2010-11, the government has extended the benefit in Section 80E to all streams of studies including regular courses as well as vocational courses, pursued after passing the Senior Secondary Examination from a recognized Board.

Education Loans taken for full time courses only are eligible. Any graduate course (as mentioned above), or, post-graduate courses in applied sciences, mathematics or statistics are considered for a deduction. No deduction is available for part-time courses.

  • Deduction Period

The deduction is available for a total of eight years or till the principal and interest amount have been repaid, whichever comes earlier. This eight years would include the year in which the loan repayment starts and seven years following this year. So even if your loan tenure exceeds these eight years, no deductions can be claimed beyond this.

  • Key Factors to Keep in Mind
  1. Loan should be in the name of individual claiming deduction. No deduction can be claimed for loans in the name of parents, spouse or sibling; even if the loan was taken for your studies.
  2. The course need not be pursued in India. Loans for overseas courses are also permissible for a deduction.
  3. Deduction would be applicable only when the individual starts repaying the loan.

A final word…

The benefit under section 80E is over and above the tax benefits under section 80C. So if you have utilized your limit under section 80C, this could be a further opportunity to reduce your tax outgo.

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