Section 80E Deduction – Interest on the Educational Loan
Overview of Section 80E Deduction - Educational Loan Interest
This post will discuss the deductions under Section 80E of the Income Tax Act- interest on the educational loan.
Here, we will take a look at each section in detail:
What is Section 80E?
Section 80E is a taxable income tax deduction that covers the “interest component” paid on higher education loans from notified financial or designated charity institutions or banks.
If you are the legal guardian of a child, you can deduct interest on school loans acquired for that child, your spouse, or yourself.
Purpose of the loan
You should only take the loan to pursue higher studies. You can take an educational loan for higher studies in India or outside India. After passing the senior secondary or equivalent examination, you can pursue higher studies in all fields, including vocational and regular courses. However, you should only take the loan to study full-time courses.
Eligibility Criteria
Here are the eligibility criteria for claiming tax deductions under Section 80E of the Income Tax Act:
- Only the interest on an educational loan can be deducted from your taxable income.
- Individuals can claim a deduction on education loans, but Hindu undivided families and companies cannot.
- You can claim an 80E deduction if you take an education loan from a recognized financial institution or a charitable organization but not from a friend or relative.
- The loan must be taken for higher education, which includes vocational and regular courses after passing the senior secondary examination or its equivalent.
- You can claim the deduction for a maximum of eight years, starting from the year you pay interest on the loan.
Where should the loan be availed from?
To claim the tax benefit of Section 80E, you need to take a loan from a recognized:
- Financial institution – Any banking company to which the Banking Regulation Act, 1949 is applicable (include any bank/banking institution as per in Section 51) or any other Central Government certified financial institutions.
- Charitable institution – Any institution approved for the purpose of Section 10(23C) or 80G(2)(a)
Note: If you take the loan from any other entity, it is not eligible for the deduction.
Limit for claiming deduction under 80E
Deduction amount under Section 80E
The deduction under Section 80E is not limited. The interest rate, loan amount, or other factor does not affect the deduction amount. The deduction is based on the actual interest paid in a financial year.
Period of deduction
The deduction under Section 80E is applicable for a maximum of 8 years, starting from the year you repay the loan.
If you repay the loan in full before eight years, you can only claim the deduction for the years you repay the loan. If you repay the loan after eight years, you cannot claim the deduction for the interest paid after eight years.
Proof / Documents required to claim the deduction
If you claim the deduction under Section 80E while furnishing ITR, then you need not submit any proof.
The list of documents you need to require to claim the deduction are:
- Loan sanction documents.
- Repayment statements from the financial institution / charitable institution. Such statements have a clear division of principal and interest amount repaid.
However, for a salaried employee, the employee can submit the statement to the employer so that the employer can consider this deduction in Form 16.
Benefits of Paying off Education Loans Early
- Many would want to pay off their college loans throughout the 8-year payback period to take advantage of the deductions.
- These people prefer to invest their extra money rather than pay off their debt.
- They often extend the repayment period to 8 years for maximum tax benefits.
- In this strategy, you should invest the excess amount instead of using it to repay EMIs to maximize your income.
- Paying off the loan amount early prevents you from being trapped in debt and being burdened by EMIs.
- Education loans are made available to help more people pursue higher education.
This post is on deductions under Section 80E of the Income Tax Act. Please share your views and opinions with us in the comment section below.
FAQ
1. What is the relationship between Section E and Section C?
Ans: Section E allows you to deduct the interest paid on an education loan, whereas Section 80C allows you to deduct the tuition charge.
2. Is it possible to claim Section 80E benefits if I use my education loan to study outside India?
Ans: You can claim Section 80E benefits even if you use the education loan for studies outside India.
3. Is there a maximum deduction that I may claim?
Ans: No, there is no maximum deduction that you may claim.
4. Can HUFs get Section 80E tax benefits?
Ans: No, HUFs cannot claim tax benefits under Section 80E.
5. Are companies eligible to claim Section 80E tax benefits?
Ans: Section 80E does not allow companies to claim tax benefits.
