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  7. Section 80E - Tax Deduction for Interest on Education Loan

Section 80E Income Tax Deduction or Interest on Education Loan

Updated on: 03 Jun, 2024 02:38 PM

With the growth in the economy, the expenditure on education has also increased. The education sector is evolving daily, increasing the burden on the wallets of middle-class households in the country.

Education loans not only help you in higher studies in India or overseas; it also helps you save a lot of taxes. Section 80E allows you to claim a deduction for the education loan taken from any financial institution or approved charitable institution.

Contents

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.

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,

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 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.

Income Tax Filing for FY 2023-24 (AY 2024-25) has already been started. File early and claim your refunds faster. File today.

FAQs on Section 80E

Q- Can deduction u/s 80E be availed if the loan is taken for higher studies at a foreign university?

Yes, the deduction can be availed for foreign education loans as well. The assessee should be an Indian citizen, and the loan should have been taken from a recognized Indian financial institution or approved charitable institution. Thus, if these conditions are satisfied, then it does not matter that the course and college or university are from outside India.

Q- Is deduction u/s 80E available if the loan is from a foreign institution?

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.

Q- Does Section E come under Section C?

Section E allows deductions on any interest that is paid on an education loan, while Section 80C allows deductions on the tuition fee.

Q- I work in a company and took an employee’s education loan for sending my son to the USA for further studies. The terms and conditions are exactly like that of a bank. Can I claim my interest amount under 80E?

No, you cannot claim the deduction in this case. The loan has to be from a recognized Indian financial or an approved 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 an income tax deduction under section 80E.

Q- What is the meaning of higher education for 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, such as the local, State, 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.

Q- For what purpose should a loan be taken to claim deduction u/s 80E?

Interest on loans taken for pursuing higher education (including vocational studies) is eligible for deduction u/s 80E.

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CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.