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Section 80E of Income Tax Act Research Team | Posted On Thursday, March 21,2019, 05:38 PM

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Section 80E of Income Tax Act



What is Section 80E?

Section 80E is a Section which comes under the Income Tax Act 1961. Section 80E states that the interest paid on the education loan enjoys tax deduction. Section 80E helps you get a tax deduction on education loan interest. Principal repayments on education loan don’t get tax deductions.

Section 80E of the Income Tax Act refers to provisions of income tax deduction on education loans. Interest paid on education loans that are availed for funding higher studies of spouse or children enjoy tax deduction.  This essentially means that any interest paid towards clearing an education loan qualifies for a tax deduction under Section 80E of the Income Tax Act, 1961.

The tax deduction can be claimed when repaying the education loan. The interest paid on the education loan can be claimed in the particular year when the loan is being repaid.

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SEE ALSO:  What is Section 80E?

Section 80E of Income Tax Act:

Section 80E of the Income Tax Act is devised for providing tax benefits to people, who avail loans for funding education of children or spouse. Section 80E offers provisions to claim tax deductions, while filing ITR. Tax deduction under Section 80E can be availed, even if you have already exhausted Section 80C deduction.

The tax deduction on education loan can only be availed on the interest component. Tax deduction on payment of interest can be claimed only after repayment has commenced, and can be claimed only in the particular years when interest is being paid on the educational loan.

Deductions under Section 80E:

Deduction under Section 80E can be claimed from the start of the first year when repayment commences. A total of 8 annual deductions are allowed with respect to the interest component on education loan. Section 80E refers to higher education, which means any course taken up after the completion of higher secondary examination or its equivalent. These deductions can be claimed towards repayment of loans availed for vocational training as well.

Eligibility under Section 80E:

Listed below are the eligibility criteria to claim tax deduction under Section 80E:

  • Only individual tax payers are eligible for tax deductions under Section 80E.
  • HUF (Hindu Undivided Families) and companies are not eligible to avail tax deductions under this Section.
  • Education loan availed from friends or relatives are not eligible for deductions under this Section.
  • Only the interest paid on the education loan is eligible for tax deduction. The principal part of the education loan does not qualify for tax exemption under Section 80E.
  • The deductions can be claimed only if the money is borrowed for the purpose of financing higher education.
  • The tax deductions can be availed only for 8 years starting from the repayment in the first year. Deductions cannot be claimed after 8 years from the time the loan is availed.
  • Deductions can be availed only if the loan is availed under the name of person liable to pay taxes.
  • The tax benefit on education loan can be availed by the parent as well as the child for whom the education loan is availed. This means there is flexibility to claim the deduction. It can be claimed by the person (parent/child) paying the EMIs on education loan.

Period of Deduction:

Starting from the date of repayment, the deduction can be availed only for 8 years or until the interest is fully repaid (whichever is earlier). So, the repayment of the loan determines the period up to which the deductions can be claimed. It means that the tax deduction will be allowed for 5 years and not 8 years if you repay the education loan within 5 years.

You must also keep in mind that if the loan tenure exceeds a period of 8 years, then you cannot claim a tax deduction on the interest on education loan paid beyond 8 years. So, it is beneficial to close the education loan within the 8 year time period.

Where to Borrow From?

Section 80E states that education loan which is availed from banks or financial institutes like NBFCs or any approved institution, qualifies for tax exemption under Section 80E. Loans taken from friends or relatives or money lenders do not qualify for tax deduction under this provision.

To get the education loan, the applicant must submit the duly filled and signed application form at the bank. It is necessary to attach requisite documents along with the form. Education loans can only be availed for higher education i.e. graduation and above. Once the bank verifies the application, then the loan is sanctioned. Thereafter, the tax benefits can be availed either by the parent or the child, whosoever is repaying the loan.

Purpose of The Loan:

The loan must be availed for pursuing higher education. So, the applicant must have already finished his/her higher secondary exams to get the education loan. Education loan can be availed for higher studies whether in India or abroad. Higher studies include all fields of study. It also includes both vocational as well as regular courses.

Claiming 80E Tax Deductions:

Tax deduction can be claimed for education loans availed from a recognised lending institution. There is no specified upper limit on education loan, so you can avail tax benefits on the entire interest paid, but the principal amount does not get the benefit. Deductions can be availed irrespective of the amount of loan.

The deduction under Section 80E can be claimed from the year in which you start repaying interest on the loan for higher education. Tax deductions can be claimed annually, while filing income tax online. If you have started paying interest from the same year of availing the loan, then you can claim a tax deduction for the payment of interest on this loan.

The deductions can be claimed on the interest portion of the EMI paid during a particular financial year. You need to obtain a loan certificate from the bank which specifies the interest part. The certificate must segregate the principal portion and the interest portion of the education loan paid during the financial year.

SEE ALSO:  Eligibility under Section 80E


Who can claim Section 80E deduction?

An individual who has applied for an education loan for funding higher education can avail tax benefits under Section 80E of the Income Tax Act, 1961. The education loan can be availed by an individual on behalf of spouse, children or students for whom the borrower is a legal guardian.

How to claim deduction under Section 80E?

To claim deduction under Section 80E, you must avail loans from any financial institution or a recognised charitable institution. Deduction under Section 80E cannot be availed for interest on education loan availed from the employer or a close relative.

Where the loan must be availed?

Tax deductions under Section 80E cannot be availed by individuals paying interest to money lenders, friends or relatives, or even employer towards higher education loans. As per Section 80E, a financial institution refers to any bank or a financial institute, operating as per the Banking Regulation Act, 1949 and is approved by the RBI and has capacity to offer loans.

What is Section 80E?

Section 80E is a part of the income tax act which says that the interest on loan availed for higher education of self, spouse or children is liable for tax exemption under Section 80E. However, there are certain conditions which must be fulfilled like the loan must be availed from an approved financial institution and the deductions can be claimed for 8 years from the initiation of the repayment process. The tax exemption can be availed only by individual taxpayers.

How much deduction is allowed under section 80E?

Any individual who has borrowed money from a recognised lending institution can avail tax benefit under Section 80E of the Income Tax Act on the interest portion of education loan up to any limit. Tax deduction under Section 80E can be availed even if you have exhausted Section 80C.

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