Introduction:
Expenditure on higher studies and technical courses like MBA, Engineering, and Medical etc. nowadays has increased significantly. Thus, many parents need to take education loans to finance higher studies of their children. Section-80E of the Income Tax Act allows deductions in respect of such education loan from the income of the assessee. Therefore, an education loan helps you not only finance your higher studies but also helps in saving tax as well.
Who can claim deduction u/s 80E??
• ONLY Individual can claim deduction under section 80E.
• No deduction is allowed to HUF or other assesses.
What is the Quantum of deduction under section 80E??
• There is no limit as to maximum amount of deduction.
• Interest element of education loan paid during the year shall be allowed as deduction.
• No tax benefit is allowed towards principal element of education loan.
What is the period of deduction under section 80E??
• Deduction is available for interest element of loan from the year in which the assessee starts repaying the loan and seven succeeding years.
• Thus, deduction is allowed for maximum 8 years or till the interest is paid, whichever is earlier.
• Thus, if loan is repaid in 3 years, deduction for interest element shall be allowed only for 3 years.
What are the conditions for claiming deduction under section 80E??
• Education loan should have been taken from:-
(a) any financial institution i.e. a banking company or notified financial institution or
(b) an approved charitable institution i.e. an institution approved for section 10(23C) or 80G(2)(a)
• Loan should be taken for higher education of:-
(a) Self
(b) Spouse
(c) Children/adopted children or
(d) Student of whom you are legal guardian
• Higher Education means any course pursued after passing the senior secondary examination or equivalent from any school, Board or recognized university.
• It includes both the vocational courses as well as regular courses.
• Such higher education can be pursued in India as well as outside India.
Points to remember:-
• Deduction under section-80E is available only to individual assessee.
• Loans taken from employer, friends and relatives are not eligible for deduction under section-80E.
• No tax benefit is available for principal component of the loan.
