Section 80E Income Tax Deduction

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Section 80E of the Income Tax Act

Gone are the days when one has to take a pause or quit the plan pf higher studies due to unavailability of funds in the family. The easy availability of education loans has made it possible to study in abroad or continue higher studies even when one has a financial crisis at home. In addition to this, the education loan that one takes for the higher studies of his/her child, spouse, self, or other family member is eligible to take tax benefits for the same.

If one has taken an education loan and is paying it back, then the interest that he/she is paying for the same is eligible to get a tax deduction from his/her total income under Section 80E of Income Tax Act, 1961. This section caters to the education loan only. However, the tax exemption is offered on the interest of the EMIs paid.

Understanding Section 80E

The education loan that one takes on behalf of his/her children, spouse, students for whom he/she is a legal guardian or adopted children is applicable to get deduction under Section 80E.

In Section 80E of Income Tax Act, 1961 it is mentioned that this education loan should be taken from a charitable or financial institution. The tax deduction under Section 80E cannot be availed for the interest that one pays to his/her employer or relative for the loan for higher studies.

Here a financial institution is any bank that is operating according to the Banking Education Act, 1949 and is providing loan facility. A charitable establishment is any authority that is mentioned in clause number 23C of Section 10.

Tax Benefits under Section 80E

An individual who has taken an education loan for higher education can avail the tax deduction under Section 80E of the Income Tax Act, 1961. The best part about this deduction is one can avail it even after availing the maximum provided deduction of Rs.1, 50, 000 under Section 80C.

Note: The tuition fee paid towards the education is also eligible for deduction under Section 80C of the Income Tax Act, 1961. However, the interest paid towards the education loan for higher education gets deduction under Section 80E.

Eligibility to Get Tax Deduction under Section 80E of the Income Tax Act, 1961

The eligibility criteria to get income tax deduction under section 80E of the Income Tax Act, 1961 are:

  • This tax deduction can be availed by only individuals but companies and Hindu undivided families (HUF) cannot avail the tax exemption under 80E. In addition to this, the loans that one takes from relatives and friends cannot avail the benefit under this section of the Income Tax Act.
  • One can claim the Section 80E Income Tax Deduction only for the interest that one pays against the education loan taken.
  • The benefit of this deduction can be availed by both parent and child. This means the person who is repaying the education loan, whether child or parent, can claim the deduction.
  • The deduction is available only against the loan that is taken for higher education.
  • The Income Tax exemption under Section 80E can be availed only by the person under whose name the loan is taken and is liable to pay the taxes.

Deduction Period

The tax deduction on the interest of the loan that an individual has taken for higher education starts as soon as he/she starts repaying the loan. This benefit is available only for eight years starting from the year one has started repaying the loan or until the interest is completely repaid, whichever comes first. This means, if the complete loan is repaid in six years, then the tax deduction under Section 80Ewill be available for six years only and not for eight years. In addition to this, if the loan duration exceeds eight years, then the interest paid after eight years will not be eligible for tax deduction under Section 80E.

Amount of Deduction

The allowed deduction is the total interest of the EMI that one pays during one financial year. However, there is no limit on the maximum deduction amount, but an individual has to get a certificate from his/her bank for the same. This certificate should have separate descriptions of interest and the principal amount of the education loan for that specific financial year. In this way, there will not be any tax benefit for the principal amount; instead, the interest is eligible for the same. 

Documents Required for Claiming Deduction under Section 80E of the Income Tax

The documents required for claiming the tax deduction under Section 80E of the Income Tax Act, 1961 are:

  • An individual needs to get a certificate from the Bank or financial institution, or from the charitable institute that is approved and from which the loan is taken. This certificate must have separate portions for the principal amount and interest amount of the education loan that is taken for the financial year.

FAQs on Section 80E of the Income Tax Act 

Question 1: What is Section 80E of the Income Tax Act?

Answer: As per the Income Tax Act, 1961 the interest that one pays on the education loan can be claimed as a tax deduction. 

Question 2: Define allowed deduction limit under Section 80E?

Answer: The interest paid on the education loan is eligible to get tax deduction under Section 80E of the Income Tax Act. This amount does not have an upper limit. The loan amount can range from Rs.1 Lakh to Rs.20 Lakh.

Question 3: Who is eligible to claim deduction under 80E?

Answer: Any individual who has taken an education loan can get the benefit of tax exemption under Section 80E. One can take this loan on behalf of his/her spouse, adopted children, children, children for whom one has taken loan being local guardian can avail tax benefit under section 80E.

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