Deduction w.r.t. interest on education loan for higher education abroad – section 80E demystified

Prelude:

Mr. X has sent his son to abroad for pursuing his higher studies in a foreign university. Mr. X has taken a loan from a financial institution towards meeting cost of his son’s higher education. Mr. X wants to claim the interest on repayment of education loan as a deduction under Section 80E. This is a common question posed by the tax payers in a similar scenario.

Repayment of interest on loans taken from the financial institutions or approved charitable institutions for the purpose of pursuing higher education is eligible as a deduction for a maximum period of eight years under Section 80E of the Income Tax Act,1961 (hereinafter referred to as “the Act” for short).

A pertinent question is whether such deduction can be claimed on repayment of interest on loan availed for pursuing higher education abroad?

This article seeks to demystify the provisions in the light of a Tribunal ruling, which has settled the issue beyond an iota of doubt.

Section 80E – analysed:

In computing the total income of an assessee, being an individual, there shall be deducted, in accordance with and subject to the provisions of this section, any amount paid by him in the previous year, out of his income chargeable to tax, by way of interest on loan taken by him from any financial institution or any approved charitable institution for the purpose of pursuing his higher education or for the purpose of higher education of his relative”.

The deduction u/s.80E(1) 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.

Further, as per section 80E (3) (C) of the Act, “Higher education” 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.

It is evident from the above provisions that repayment of interest on loan taken for the purpose of pursuing higher education is eligible as a deduction under Section 80E. An interesting question had come up for consideration before the ITAT (Income Tax Appellate Tribunal) as to whether the higher education should be pursued only in India and not abroad.

This issue was decided by the Income tax Appellate Tribunal (ITAT) of Pune Bench in favour of the assessee in the case of Nitin Shantilal Muthiyan Vs Deputy CIT, Ahmednagar [2015] 59 taxmann.com 416 (Pune – Trib.) . In the said case, the assessee had claimed the deduction on interest on loan taken for the purpose of pursuing higher studies abroad by his son u/s. 80E.

Deduction w.r.t. interest on education loan for higher education abroad

Facts in brief:

  • The assessee was an individual and filed his return of income by declaring the total income of Rs.61,03,220/-. His son was pursuing the higher education (MS in Electrical Engineering) in Washington, USA after completing his Bachelor of Engineering from Pune University. He had claimed a of Rs.73,125/- in his return towards interest on loan taken for his son’s education.
  • During the assessment proceedings the Assessing Officer (AO) disallowed the deduction on the ground that the same was allowable only in case of higher education pursued in Indian educational institution duly authorised in India and not for higher education pursued abroad or foreign educational institutes.
  • The assessee filed an appeal with the Commissioner of Income tax (Appeals) being aggrieved by the disallowance of deduction u/s. 80E made by the AO. The CIT (Appeals) rejected the appeal on the ground that the assessee had failed to submit any evidence that the university where the assessee’s son was pursuing his higher education is approved either by the Central Government or by any other authority authorised for this purpose as per Section 80E (3)(c) of the Act and that the assessee had not mentioned the name of the course or programme undertaken by his son in any of the university or institute approved by the Central Government in this regard..
  • The assessee pursued an appeal before the ITAT, Pune Bench and his appeal was allowed by holding thus:
    • That the assessee had submitted the certificate from the University of Pune as well as the certificate from the University of George Washington in support of his son pursuing the education.
    • Further, higher education cannot be pursued unless a student completes his senior secondary examination or its equivalent.
    • Nowhere the section specifically mentions that higher education should be pursued in India only and not abroad. There is no such stipulation under Section 80E of the Act.
    • Had there been such an intention by the legislature it would have been definitely and specifically mentioned as had been mentioned in Section 11 of the Act. As per Section 11(1) (a) of the Act, any income from property held for charitable purposes is exempt from tax if it is applied in India.

Summary:

This ruling has set at rest the controversy and still holds the field and thus the deduction can be claimed u/s. 80E in case of repayment of interest on loans taken from the approved financial institutions or approved charitable institutions for the purpose of pursuing higher education abroad.

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