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Section 80E: Tax Exemption on Interest on Education Loan

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  • 28th Nov 2019
  • 2,187
Section 80E: Tax Exemption on Interest on Education Loan

The Indian education industry is expected to grow to USD 144 billion by 2020. Demographically, the country has one of the biggest youth populations combined with a large number of educational institutions.As the economy continues to grow and incomes increase, spending on education is also witnessing a boost. Education expenses account for the second-highest category in a middle-class Indian household.

Several people opt for education loans to fund studies and Section 80E of the Income Tax Act, 1961 helps you reduce your taxes when you opt for such a loan.

Section 80E of the Income Tax Act

According to this section, the interest paid during the financial year on the education loan is eligible for tax benefits. The income tax deduction under Section 80E may be claimed for education loan taken for self, spouse, children, and any students for whom you are a legal guardian.

The tax benefits under this section are available only on loans availed from a financial institution or a charitable trust. If you avail of a loan from your relative or friend and pay interest on the same, the 80E deduction benefits are not available.

Charitable institutions for this purpose include universities or educational institutes established for education purposes and are non-profit organizations. These may also include institutions or trusts, which are established for religious or charitable purposes, and are prescribed by the commissioner of Income Tax (Exemptions) or Director-General.

Deduction under Section 80E

Having understood what is Section 80E, you need to know that the benefits under are available only on the interest component and not on the principal amount on the Equated
Monthly Installment (EMI). You may claim such deductions from the first repayment date and continue using the benefits for seven more years. This means the 80E deduction limits are available for a total period of eight years.

The meaning of higher education as per Section 80E

The section defines higher education as studies pursuant to the completion of the Senior Secondary Examination or its equivalent. Moreover, the board or the university must be state or government approved. The course should be a full-time or a vocational program taken up after the completion of the Senior Secondary Examination. Interest paid on an education loan availed for pursuing an international course after completing Senior Secondary Examination is also eligible for benefits under this section.

Eligibility for tax deduction under Section 80E

  • To avail of tax benefits, you need to meet certain eligibility criteria as discussed below:
  • Only individuals may claim deductions; Hindu Undivided Families (HUFs) and companies cannot take benefit of this section
  • Only the interest paid on the loan is eligible
  • The deduction is available only for loans availed from recognized charitable or financial institutions to pursue higher education for a period of
    eight years from the first repayment year
  • The loan must be in your name; however, the course may be pursued either by you, your spouse, or children

The quantum of deduction under Section 80E

The section 80E income tax benefit is available only on the interest paid on the education loan. However, there is no upper limit on the amount that may be claimed during the eligible period. You need to procure a certificate from your lender to claim the deduction. It must clearly show the principal and the interest components within the EMI. The interest paid on the education loan must be through your income during the financial year.

The benefit is available for a period of eight assessment years under the assumption that the course would be complete and the loan would be repaid within this time. Often,education loans may provide moratorium of six months to one year post completion of the course. Therefore, repayment may commence only after the end of the moratorium period. In such cases, the benefits will be available from the assessment year when the first repayment is done and seven additional years.

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