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Section 80E Deduction for Interest on education Loan

Have you taken an education loan to support higher studies of yourself or of your spouse, Children or for the student of whom you are legal guardian and you are not aware of the tax benefits that you are entitled to. Then here is a guide that will assist you to know tax benefits on education loans. These benefits help you to reduce the overall cost of your education loan.

Have you taken an education loan to support higher studies of yourself or of your spouse, Children or for the student of whom you are legal guardian and you are not aware of the Income Tax deduction under Section 80E that you are entitled to. Then here is a guide that will assist you to know Income Tax deduction under Section 80E on education loans. These benefits help you to reduce the overall cost of your education loan.

The deduction under section 80E for Interest on educational loan is available to an individual if following conditions are satisfied:

1. Who is eligible for Section 80E Deduction for educational loan 

Section 80E Deduction for educational loan available only to Individual not to HUF or other type of Assessee.

2. Deduction amount under Section 80E

The amount of interest paid is eligible for deduction and moreover there is no cap on the amount to be deducted. You can deduct the entire interest amount from your taxable income. However there is no benefit available on the 3

3. Deduction  under Section 80E available on Payment of Interest

Section 80E Deduction available if Interest is been paid during the previous year and was paid out of income chargeable to tax which means if repayment is made from income not chargeable to  tax than deduction will not available. Deduction will be allowed only when actual interest is paid.

Note: – Earlier to previous year 2006-07 the Section 80E  deduction was available only for Interest on loan taken and repaid by the assessee for his own studies.

4. Interest on educational loan should have been paid on loan taken by him from any financial institution or any approved charitable institution for the purpose of pursuing his higher education. Interest on Loan taken from relatives or friends will not be eligible for deduction under section 80E.

(a) “approved  charitable  institution”  means an institution established for charitable purposes  and  approved  by the prescribed authority  section  10(23C),  or an institution referred  to  in section 80G(2)(a);

(b) “financial  institution”  means a banking company  to which  the Banking Regulation Act, 1949 applies  (including  any bank or banking  institution referred to in section 51 of that Act);  or any other financial  institution  which the  Central Government  may, by notification in the Official Gazette, specify  in this behalf;

(c) “higher education” means any course of study pursued after passing the Senior Secondary  Examination  or  its  equivalent  from  any  school,  board  or  university recognized by the Central Government or State Government or local authority or by any other authority authorized by the Central Government or State Government or local authority to do so;

5. Educational Loan should have been taken for the purpose of pursuing higher studies of Individual , Spouse, Children of Individual or of the student of whom individual is legal Guardian. . Hence parents are also eligible to claim deduction of interest paid by them on loan taken for their children’s education.

Income tax department has added (W.e.f. A.Y. 2010-11)  additional fields of studies (including vocational studies) pursued after passing the Senior Secondary Examination or its equivalent from any school, Board or University recognised by the Central or State Government will also be covered under deduction in respect of interest paid on loan taken for higher education.

Definition of Higher education is  substituted by making a amendment as per Finance (No. 2) Bill 2009. After the amendment Higher education would means any course of study pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognised by the Central Government or State Government or local authority or by any other authority authorised by the Central Government or State Government or local authority to do.

So Higher studies include all the fields of study pursued after passing the senior secondary examination or its equivalent exam. It includes both the Vocational courses as well as the regular courses.

6. Interest on educational loan should have been paid for the loan taken for the purpose of pursuing his higher education or of the spouse and children. From A.Y. 2010-11 Relative also includes student for whom the individual is the legal guardian. 

7. Deduction period of Section 80E Deduction: – Deduction shall be allowed in computing the total income in respect of the initial assessment year* and seven assessment years immediately succeeding the initial assessment year or until the interest is paid by the assessee in full, whichever is earlier.

The tax benefits on education loan are only valid once you start the repayment and moreover they are only available up to eight years. For instance if your loan tenure exceeds eight years, you cannot claim for deductions beyond eight years. Further  if entire payments are done in 5 years only, then tax deduction will be allowed for 5 years and not 8 years.

Hence it is better that the education loan is repaid within eight years. Unless if the loan amount is very high and it is difficult to afford a high amount of equated monthly installment (EMI), one should not opt for education loan with longer tenure.

*Initial assessment year means the assessment year relevant to the previous year, in which the assessee starts paying the interest on the loan.

8. Education Loan should be in the name of Individual: – Deductions on education loan can only be claimed if the loan has been taken in your own name. If your parents, spouse or sibling has taken the loan for your studies, then you are not entitled to get tax benefit.

9. The loan includes not only tuition or college fees but also other incidental expenses for pursuing such studies like hostel charges, transport charges etc.

10. Repayments of education loan NOT covered under Section 80C.

11. There is no condition that the course should be in India.

12. Document required to Claim Deduction under Section 80E– You need to obtain a certificate from your Bank / financial institution or  approved charitable institution from whom such education loan is been taken.Such certificate should segregate the principal and interest portion of the education loan paid by you during the financial year. The total interest paid will be allowed as deduction. No Tax benefit is allowed for the principal repayment.

(republished with amendments )

Categories: Income Tax

View Comments (329)

  • Sir, I am going to take education loan from two firms for my son's MBA course , one is a employee's cooperative bank and other in a nationalised bank. I would like to ask that can I have tax deduction under 80E on interest amount on both banks?

  • I am standing as co-obligant for edn.loan of my son for Rs.4500000/- and remitting interest portion from my salary and my son also remitting amount toward the loan account.whether,i can claim int.concession under 80e

  • U/S 80-E, Interest on education loan accrued & due but paid partly and partly is being carried forward.Please advise total interest due is deductable or only interest actually paid is allowable deduction U/s 80-E

  • I had taken loan for my son. Course completed and joined the company. My question is who can take Tax rebate of education loan interest, (father/son or both).

  • My son ,me, jointely taken higher education loan for my son education in us from sbi.now my son is working in us and sending emi amount in our joint saving a/c in same bank from there emi is deducted.can I be eligible for tax benefit under sec 80 e.

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