Tax Planning under section 80C and Section 80E

CA Subhash Srinivasan

A. DEDUCTION Under Section 80E for Interest on Education Loan

1. Conditions for availing Deduction under Section 80E :

1. Applicable to Individuals not to HUF

2. Loan must be taken for Higher studies

3. Loan must have been taken from approved financial and charitable institutions

4. Only Interest is allowed as deduction

5. Deduction is allowed only for 8 years from the date repayment not more than that

2. Amount of Deduction under Section 80E for Interest on Education Loan

Amount paid as interest is available for deduction under Section 80E of the Income Tax Act, 1961. Entire Interest amount is allowed as deduction. Repayment of Principal amount is not allowable as deduction. The deduction is available for a total of eight years or till the principal and interest amount have been repaid, whichever comes earlier. This eight years would include the year in which the loan repayment starts and seven years following this year. So even if your loan tenure exceeds these eight years, no deductions can be claimed beyond this.

3. When Deduction under Section 80E for Interest on Education Loan not available

Deduction ll not be available if the repayment is not made out of income chargeable to tax. The loan should be taken for the sole purpose of higher education. It could either be for the individual, spouse or children. Loans for the higher education of siblings, in-laws, nephew or niece, will not qualify for any deduction. Also, from assessment year 2010-11, deduction could be claimed for the student for whom the individual or assessee is the legal guardian.

4. Loans for the purpose of Deduction under Section 80E for Interest on Education Loan

The education loan should be taken from either a financial institution or an approved charitable trust. Loans taken from friends, employer or relatives do not qualify for a deduction.

5. Eligible interest for Deduction under Section 80E

Interest 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.

6. Meaning of Higher Studies for deduction under Section 80E

Higher Studies : (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.

Loan must be taken for the purpose of pursuing higher studies of Individual , Spouse, Children of Individual or of the student of whom individual is legal Guardian. Higher studies means full-time studies for any graduate or post-graduate course in engineering, medicine, management or for post-graduate course in applied sciences or pure sciences including mathematics and statistics;.

B. DEDUCTION Under Section  80C – Tution Fees

1. Conditions for claiming deduction under Section 80C for Tution Fees

i)     The deduction is available to Individual Assessee and not for HUF.

ii)    The Deduction is available for any two children.

1. This is the only clause u/s 80 C where assessee cannot claim tax benefit for expenditure done on himself. Means if assessee has paid tuition fees for his studies, he will not be eligible.

2. Deduction is not available for tuition fees paid for studies of spouse.

3. The deduction is available for Full Time courses only, so no deduction for part time or distance learning courses.

4. The fees should be paid to university, college, school or other educational institution, so no rebate for private tuitions.

5. Tuition fees paid for coaching courses for admission in professional courses or any other type of courses are not covered as that fees is not paid for FULL time education.

6. In This section tuition fees has a wide meaning than normal parlance means here tuition fees means total fees paid minus any payment towards any development fees or donation or payment of similar nature. so admission fees is also allowed. In My Opinion Transport charges, hostel charges, Mess charges, library fees ,scooter/cycle/car stand charges is not allowed. Building fund or any donation etc not allowed.

7. Deduction is available only on actual payment and not on the payable basis: For example, if fees is paid by the parent in April 2017 for the quarter ending March 2017 then fee paid will be eligible for deduction in FY 2017-18

Fee can even be claimed by Unmarried person/ divorced parent.

Adopted Child’s school fees are also eligible for deduction.

C. Comparison of Section 80E and Section 80C with Tax planning 

From the above its very clear that 80E is for repayment of Interest which can be claimed within 8 years. U/s 80C Deduction is for payment of tution fee for their children. It’s clearly evident that the benefit under section 80E is over and above the tax benefits under section 80C. So if you have utilized your limit under section 80C, this could be a further opportunity to reduce your tax outgo, provided you have to pay the loan fully within 8 years

(Author can be reached at subiin54@gmail.com)

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(updated on 21.06.2018)