Section 80E of Income Tax Act:Deduction or Interest on Education Loan

What is 80E education loan deduction?

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.

Eligibility for Tax Deduction under Section 80E

• Only individuals are eligible for tax deductions under this section. Hindu undivided families and companies cannot avail of deductions under this section.
• Deduction can be claimed only on the interest component of a particular educational loan.
• Only those loans availed from recognized financial institutions and charitable organizations are eligible for tax deduction. Loans obtained from friends or relatives are not eligible under this section.
• Loans can be taken by a taxpayer towards fulfilling the educational commitment of either himself/herself or his/her spouse or children.
• Deduction can be claimed only if the loan is availed for the purpose of higher education.
• Deduction can be availed only for 8 years, beginning from repayment in the first year.
• Deduction can be claimed only if the loan is taken under the name of the taxpayer.

What is the deduction amount u/s 80E?

There is no maximum or minimum deduction limit specified under section 80E, provided that deductions are claimed only for 8 years. The deduction amount on interest payment is not impacted by the interest rate charged by the financial or charitable institution, the amount of the loan, or any other factor. This section provides a deduction of the actual interest paid on education loans during the financial year.

Section 80E Tax Exemption Limits

The interest amount paid of the education loan during the financial year is allowable as a deduction from taxable* income just as deductions under Section 80C, 80D and more. There is no limit on the deduction amount. The benefit of the deduction is available for a maximum of 8 years or till the interest is paid, whichever is earlier. It is applicable even when you have taken an education loan for your spouse, children or for a student for whom you are the legal guardian.

Where can Education Loans be taken?

Education loan can be taken from any bank/financial institution or any approved charitable institutions. Loans taken from friends or relatives for higher education do not qualify for this deduction.

Tax Benefits Associated with Section 80E

An individual who has taken a loan for higher education is entitled to additional tax benefits under the Income Tax Act. Even if the taxpayer has already exhausted the maximum deduction limit of ₹1,50,000 under Section 80C, they can still claim deductions under Section 80E. This is because Section 80E has no upper limit, allowing taxpayers to claim the entire amount of interest paid on the education loan during the financial year.

Where should the loan be availed?

Section 80E states that the interest paid towards an education loan should be taken from an approved charitable institution or a recognized financial institution. Any other entity from which the loan is taken is not eligible for the deduction. These institutions can be identified as follows:

• Financial institution - According to the Banking Regulation Act, 1949, a financial institution is any bank that works according to its regulations.
• Charitable institution - A charitable institution can be defined as an organization with authority mentioned in clause 23C of Section 10.

Is any documentary proof required to claim a deduction under section 80E?

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 be submitted to the income tax department in case of any future scrutiny.

• The sanction documents of the loan.
• The repayment statements from the financial institution or charitable institution. Such statements should clearly bifurcate the principal and interest amount repaid.
• You also need to get an Interest certificate for every financial year from an approved bank or financial institution from which the loan is taken.

What is the period/time limit for claiming a deduction?

The deduction under section 80E can be claimed for a maximum of 8 assessment years from the year you start repaying the loan or until the interest is fully repaid, whichever is earlier.

If the loan is completely repaid in 5 years only, then tax deduction will be allowed for 5 years and not 8 years.

For example,

• You have taken an education loan in FY 2022-23 and started paying interest in the same year.
• In this case, you can claim a deduction u/s 80E for AY 2023-24 to AY 2029-30 (i.e., 8 assessment years).
• Consider a different situation where you have repaid the complete loan in 5 years only.
• In this case, you can claim a deduction u/s 80E from AY 2023-24 to AY 2027-28(i.e., till completion of the loan)

How to calculate the deductions for section 80E?

You can calculate the tax benefits under section 80E as under For example,

The interest paid (Rs 1,00,000) on the 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.

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