Section 80E Deduction

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Section 80E – Income Tax Deduction for Education Loan

Section 80E deduction is a facility available in the Income Tax Act which provides a tax deduction for educational loans. The Government of India wished to provide a tax deduction on the interest component of an education loan availed for higher studies. For this purpose, Section 80E was introduced in the Act. The deduction under this section can be claimed on educational loans availed for higher studies of the spouse or children of a taxpayer.  Section 80E deduction is available on the interest component of an educational loan after an individual has started repaying the loan. According to the Income Tax 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. An educational loan provided for foreign studies is also eligible for deduction under section 80E. The deduction can also be availed for repayment of loans for vocational training.

Eligibility Criteria

The taxpayer must conform to the following eligibility criteria for availing Section 80E deduction:

  • Only individuals are eligible for tax deductions under this section. Hindu undivided families, companies and other categories of assessee cannot avail deductions under this section.
  • Deduction can be claimed only on the interest component of an educational loan.
  • Only those loans availed from recognised financial institutions and charitable organisations are eligible for a tax deduction. Loans obtained from friends or relatives are not eligible for seeking a deduction under this section. 
  • Loans can be taken by a taxpayer towards fulfilling the educational commitment of either the assessee or the spouse or children of the assessee. 
  • Deduction can be claimed only if the loan is availed for purpose of higher education.
  • Deduction can be availed only for eight years, beginning from repayment during the first year.
  • Deduction can be claimed only if the loan is taken under the name of the taxpayer or the spouse or children of the taxpayer. 

Amount of Deduction under Section 80E

The deduction allowed is the total interest part of the Equated Monthly Instalment (EMI) paid during the financial year. A maximum deduction of up to Rs.40,000 can be availed under Section 80E. While availing deduction under section 80E, the taxpayer must obtain a certificate from the bank from which the loan was availed providing details of principal and interest portion of the education loan paid during the financial year. 

Period of Deduction

The availability of a Section 80E deduction starts from the year the taxpayer starts repaying the loan. It is available only for seven years starting from the year in which repayment starts or until the interest is fully repaid, whichever is earlier. It should also be noted that even if the assessee’s loan tenure exceeds eight years, then the taxpayer cannot claim the deduction for the interest paid beyond eight years. So it is always advisable that education loan should be fully repaid within seven years.

Section 80E Foreign Education

Section 80E deduction can be availed for interest payment of educational loan even when the student has studied abroad. Hence, the deduction is a major incentive to parents and taxpayers for undertaking higher education in India or abroad.

To know more about the concept of Tax Audit Turnover in Income Tax, click here.

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