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Education loans just do not help you in higher studies in India or overseas, it helps you save a lot of taxes too. Section 80E provides you with tax deduction on the “interest component” paid on loan taken for higher education by an individual assessee or on behalf of their spouse or children.
Section 80E is the income tax deduction from taxable income, which covers the deduction on the “interest component” paid on higher education loans from the notified financial or approved charitable institutions or banks. Interest paid on education loans taken for higher studies of self, spouse, or children (including for whom you are the legal guardian) can be claimed as a deduction from the taxable income.
The individual can claim this deduction on payment of interest on an education loan taken for self, spouse, children, and a person for whom the assessee is a legal guardian. The person who is repaying the loan for the above-mentioned people can take benefit from the 80E deduction.
If your parents are sharing the EMI payments, then the extent to which they pay interest part of the EMI can be claimed by them and the rest by you.
There is no maximum or minimum deduction limit specified under section 80E. The amount of deduction on interest payment is not impacted by the rate of interest charged by the financial or charitable institution, the amount of the loan, or any other factor. This section provides a deduction on the actual interest paid on education loans during the financial year.
If you want to claim the benefit of 80E, then the loan must be taken from notified:
Section 80E states that the interest paid towards an education loan should be taken from a recognized charitable institution or a financial institution. Any other entity from which the loan is taken is not eligible for the deduction. These institutions can be identified as follows:
The deduction under section 80E can be claimed when filing your income tax return, and no documentary proofs are required to be attached. The documents mentioned below should still be kept safely in case required to be submitted to the income tax department in case of any future scrutiny.
The deduction under section 80E can be claimed for a maximum of 8 assessment years from the year you start repaying the loan or the interest is fully repaid.
In the case where the complete repayment of the loan is done in 5 years only, then tax deduction will be allowed for 5 years and not 8 years.
For example,
You can calculate the tax benefits under section 80E as under For example,
Particulars | Amount |
Income | Rs 6,00,000 |
Less: Interest paid (Deduction u/s 80E) | Rs 1,00,000 |
Net Taxable Income | Rs 5,00,000 |
The interest paid (Rs 1,00,000) on education loan is deducted from the taxable income (Rs 6,00,000). As a result of which the net taxable income is reduced to Rs 5,00,000.
Yes, the deduction can be availed for foreign education. The assessee should be an Indian citizen and the loan should have been taken from an Indian financial or charitable institution. But, the course andcollege or university can be from outside India.
No, for claiming the deduction under section 80E, the loan must be taken from an Indian Financial institution or specified Indian charitable institution or Indian Bank.
No, you cannot claim this deduction. The loan has to be from a recognized Indian financial or a charitable institution. A loan taken from an employer, friend or relative is not allowed for deduction. Though the terms are the same, you took a loan from your employer so you are not qualified to claim income tax deduction under section 80E.
As mentioned above, the tax deduction under section 80E is available for the interest paid on education loans taken for higher studies. Now, these higher studies, as defined by the Act, are as follows: All the courses taken after successfully completing class 12th.
A legible authority like the local authority, State government, or Central government should approve the board or the university where admission is taken.
The loan taken should be for the study of full-time courses only. The field could be medicine, engineering, nursing, applied science, management, etc. Part-time courses are not entitled to deduction under 80E. But it does cover the vocational courses taken after completing the 12th standard.
The course for which the loan is taken can be in a college or a university outside India. The loan has to be taken by an Indian resident and the financial or charitable institution from which the loan is taken also has to be Indian.
Interest on loans taken for pursuing higher education (including vocational studies) is eligible for deduction u/s 80E.
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