What is section 80E of Income Tax?

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.

Who can claim tax benefits on interest paid on an education loan?

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.

What is the deduction amount u/s 80E?

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.

Where should the loan be availed?

If you want to claim the benefit of 80E, then the loan must be taken from notified:

• Financial institutions or
• Approved Charitable institutions.
• Banks

Which are the notified financial institutions under section 80E?

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:

• Financial institution - According to the Banking Regulation Act, 1949, a financial institution is defined as any bank working according to the regulations defined in the Banking Regulation Act.
• 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 still be kept safely in case required to 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 have a clear bifurcation of the principal and interest amount repaid.

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 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 have taken an education loan in AY 2023-24 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 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.