Section 80E of The Income Tax Act: Eligibility, Tax Benefits and Deduction
Education loans are highly useful financial instruments to help you manage expenses related to higher studies or foreign education. They can also help you to save a lot on your income tax.
If you are repaying an education loan, you are eligible to avail tax deduction under Section 80E of the Income Tax Act. The following sections include a detailed rundown of Section 80E.
About Section 80E
An education loan that you take for your spouse, children, or adopted children is eligible for tax deductions under Section 80E. However, you have to take an education loan from a financial institution or a charitable organisation.
A financial institution refers to any bank that is functioning according to the Banking Regulation Act of 1949. A charitable organisation is an establishment that is stated in Clause 23C of Section 10.
As per Section 80E, you can claim tax deduction only on the interest component of the EMIs that you pay.
Also read: Section 80CCD of Income Tax Act
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Section 80E: What are the Tax Benefits?
As mentioned, you can get a tax deduction on the amount that you pay towards the interest of an education loan.
However, the best part is that you can claim deductions even beyond the maximum benefit of Rs. 1,50,000 available under Section 80C.
Notably, you can claim a tax deduction for the amount paid as tuition fee under Section 80C, while the deduction for education loan interest is provided under Section 80E.
Eligibility Criteria for Claiming Deduction
To avail of a tax deduction under Section 80E, you need to fulfil the following criteria:
- Tax deduction under this section can be claimed by the parents as well as the children. So, the person who is going to repay the loan, whether the child or the parents, can avail of tax deductions.
- You can avail of this deduction only against loans that you take for higher education or foreign education.
- This tax benefit can be availed by only individuals and not by Hindu Undivided Families or companies.
- You cannot claim deductions for education loans that you take from friends or relatives.
Amount of Deduction
The total interest you pay towards the education loan in one financial year qualifies for tax deduction under Section 80E of the Income Tax Act. There is no limit on the maximum amount that you can avail as a deduction under Section 80E. However, you need to obtain a certificate from your financial institution.
The certificate in question must have details of the interest and principal components of the education loan for a particular financial year.
Deduction Period
The tax deduction for the interest you pay on an education loan begins as soon as you start to repay your loan. However, you can avail of this tax benefit only for eight years from the year you start to repay your loan or until you repay the interest amount entirely (whichever comes before).
For instance, if you completely repay your loan within seven years, then you cannot avail of this tax benefit for eight years. Contrarily, if you take more than eight years to repay the loan, then you cannot claim a tax deduction on the interest beyond the eighth year.
Who can Claim Tax Benefits under Section 80E?
If you have taken an education loan for yourself, spouse, children or anyone to whom you are a legal guardian, then you can claim such a deduction. If you share the EMI payments with your parents, then they can claim deductions for the interest part they are paying. You can claim benefits for the rest portion of the EMI’s interest component provided both parties fulfil all necessary conditions.
Documentary Proofs Needed to Claim Deduction
You can claim tax deductions under Section 80E of the Income Tax Act while you file your ITR. You do not need to attach any documentary proof for availing of this deduction. However, you might need to keep certain documents handy in case the IT Department asks for them for scrutiny.
These documents include:
- Sanction documents of the education loan
- Repayment statements from the organisation that has provided the loan (the repayment statement should provide a distinct bifurcation of principal and interest amount of the EMI for a specific financial year.)
Calculating Deductions under Section 80E
To understand the calculations of tax benefits under Section 80E, let’s take the following example. Suppose you have a gross income of Rs. 6 lakh for a financial year. You have paid Rs. 1 lakh towards the interest of your education loan.
The amount you pay as education loan interest will be deducted from your gross total income under Section 80E. Now, your taxable income will come down to Rs 5 lakh (Rs 6 lakh- Rs 1 lakh).
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Final Word
An education loan is a commonly used financial option that individuals use to fund higher studies for their children or dependants. You can easily avail of a tax deduction for the interest amount that you pay for such education loans under Section 80E of the Income Tax Act. However, make sure to fulfil certain eligibility criteria to be eligible for such deductions.
Frequently Asked Questions
Yes, you can claim tax benefits even if you take an education loan for studying in a foreign country. As per Section 80E of the Income TaxAct, individuals can enjoy deductions on the interest paid for loans taken to fund higher studies or foreign education.
No, Section 80E of Income Tax does not fall under Section 80C. Under Section 80E, you can claim tax benefits for the amount you pay as interest for education loans. However, under 80C, you can seek tax deductions on the amount you pay for the tuition fee of your education.
No, you are not eligible to claim tax deductions under Section 80E if you take an education loan from any lending organization. This benefit is available only for education loans that you take from registered financial institutions or charitable organizations.
No, you cannot avail of a tax benefits under Section 80E if you take an employee’s education. The loan has to be from a registered financial institution or charitable institution. Even if the terms remain the same, you won’t qualify for tax deductions for an education loan that you take from your employer.
Higher studies, as stated by Section 80E, are as follows:
> Courses that one pursues after successful completion of the 12th standard examination
> Courses should be full-time in nature for any field such as medical, engineering, humanities, applied science, management, nursing etc
> Vocational courses that one pursues after 12th standard
> Courses pursued in institutions abroad as well as within India
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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