In this article, we will discuss about deduction under section 80E for interest on loan taken for higher education. The complete overview of 80E deduction like who can get get deduction of Section 80E, what is deduction 80E, eligibility and other important information.
You may have been wondering how people these days reduce their tax liability by a dramatic amount with the aid of deductions through education loans. Well, the trick is simple and clean. As a tax payer, you are just required to plan your expenses and things will automatically fall in your favour. So, let us understand how we can claim deduction through paying interest on education loans.
What is Section 80E?
Section 80E allow people to claim deduction in respect of interest paid towards repayment of higher education loan*. Any amount which the tax payers pay towards the interest on educational loan of his relative’s*.
Eligibility for deductions under Section 80E
A person has to satisfy various conditions in order to become eligible for deduction under Section 80E. Here are some of the most common ones:
a) Status of the Assessee: The benefit of this section is only applicable to individuals. None other than an individual is allowed to claim a deduction under the aforesaid section, entities like HUF, Firms and Companies are have been specifically excluded.
b) Applicable amount of Deduction: There is no such upper limit for deduction. The whole amount which has been paid as interest on education loan qualifies as a deduction under this section. Sadly, there are no benefits available in respect of payment towards the loan’s principal amount.
c) Loan from recognized institute: An important factor in the applicability of Section 80E is the associated party. The lender should be a recognized organization under the Government. Loan from a family member, relative, unorganized loans, etc., do not qualify for a deduction under this section.
d) Tenure of Deduction: The benefit of this deduction is available for a continuous period of 8 years. For an instance, if you are claiming a deduction under section 80E in the AY 2018-19 & A.Y. 2019-20, then the same can be claimed for the next 7 immediate years as well. However, if the loan is full repaid before 7 years, then the final repayment year will become the tenure for deduction.
e) Intent of Loan: Earlier, the benefit of Section 80E was available under higher studies only and included courses such as Bachelor’s degree, Master’s degree, etc. In 2010-11, a change was introduced whereby the scope was broadened and people can now use this section claim deductions for education loans taken after Senior Secondary Examination.
f) Person Availing the Loan: The most important factor in considering a deduction under Section 80E is the borrower. You can only avail the benefit of deduction if the education loan is in your name. No other names, including your spouse, siblings or children will qualify.
To sum up, let’s take one quick example and clear the smallest of doubts. Suppose Mr. Sharma has taken an education loan of INR 50, 000 from ICICI Bank for his child’s higher education on 01.01.2017 @ 10% pa. So, can he get benefits under Section 80E?
The answer is YES! Mr. Sharma can claim deduction under Section 80E for the AY 2017-18. Additionally, he can also continue to claim the same for the next 7 years. He would be eligible for a deduction of INR 5, 000 every year.
1) 50, 000 x 10% = 5, 000
2) It has been assumed that the interest is charged under Simple Interest and no other form of associated expenses occurred while availing loan from ICICI bank.
*Higher education means any course or study pursued after passing the Senior Secondary Examination or its equivalent from any Govt recognised school, board or university.
*Relative means the spouse and children of the individual assessee or the student for whom such individual is legal guardian.