How to claim education loan interest deduction under section 80E?

Section 80E of the Income Tax Act provides deduction towards interest paid on loan taken for higher education.

The current article covers deduction under section 80E of the Income Tax Act; eligibility for claiming deduction under section 80E; amount and period of deduction u/s. 80E; source of loan availment for claiming deduction u/s. 80E and relevant frequently asked questions.

Deduction under section 80E of the Income Tax Act –

Deduction u/s. 80E is available to individual for loan taken for higher education of self, spouse, children or student for whom individual is the legal guardian. Deduction u/s. 80E is available only for interest amount and not for the principal amount of loan.

Here, it is important to note that ‘higher education’ u/s. 80E means any study course pursed after passing Senior Secondary or its equivalent. Such study course should be pursed from any school or board or university which is recognized by the Central or State Government or any local authority.

Eligibility for claiming deduction under section 80E of the Income Tax Act –

Eligibility criteria for claiming deduction u/s. 80E are highlighted hereunder –

• Individuals are only eligible for claiming deduction u/s. 80E. Thus, Hindu Undivided Family, company, LLP, firm, etc. are not eligible for deduction u/s. 80E;
• Loan should be taken from recognized financial institutions and/ or charitable organizations. Further, loan should be taken for the purpose of higher education;
• Loan should be taken for education of self, spouse or children. Notably, deduction u/s. 80E can also be claimed for loan taken for student for whom individual is the legal guardian;
• Only interest component is eligible for deduction u/s. 80E. Accordingly, principal component of loan is not eligible for deduction u/s. 80E;
• Deduction u/s. 80E is available only to the individual paying tax under old tax regime. Thus, individual paying tax under new tax regime are not eligible for deduction u/s. 80E.

Amount and period of deduction under section 80E of the Income Tax Act –

Entire interest amount paid during the Financial Year towards higher educational loan is allowable as deduction u/s. 80E. There is no minimum limit or maximum deduction limit u/s. 80E. In nut-shell, there is no threshold limit for claiming deduction u/s. 80E.

Period of deduction u/s. 80E is earlier of the following –

• Maximum of 8 assessment years from the year in which repayment of loan is started; or
• Until the interest amount is fully paid.

Source of loan availment for claiming deduction under section 80E of the Income Tax Act –

Educational loan should be taken from either recognized financial institution or approved charitable institution for claiming deduction u/s. 80E. Loan taken from any other entity or from family/ friends is not eligible for deduction u/s. 80E.

Financial Institution –

Financial Institution u/s. 80E means a banking company to which the Banking Regulation Act, 1949 applies or any other notified financial institution.

Charitable Institution –

Charitable Institution u/s. 80E means an institution that is established for any charitable purpose and approved by prescribed authority u/s. 10(23C). Notably, institution referred u/s. 80G(2)(a) of the Income Tax Act are also included.

Frequently Asked Questions (FAQs) –

Some of the relevant frequently asked questions with regard to deduction under section 80E of the Income Tax Act are highlighted hereunder –

1. How much is the 80E exemption?

There is no threshold limit set for deduction under section 80E. Thus, entire amount of interest paid towards higher educational loan is allowable as deduction.

2. Who is eligible for an 80E deduction?

Only individuals are eligible for 80E deduction. Thus, 80E deduction is not available to company, firm, LLP, HUF, etc.

3. Can I claim 80E in the new tax regime?

No, deduction under section 80E of the Income Tax Act is not available to the taxpayer who has opted for new tax regime.

4. What is relative under 80E?

Relative under 80E means spouse and children of the individual or even student for whom individual is the legal guardian. Thus, deduction u/s. 80E is allowable on educational loan taken for self, spouse, children or student for whom individual is legal guardian.

5. Can I claim both 80C and 80E?

Yes, eligible individuals can claim deduction under both section 80C and section 80E of the Income Tax Act.