Section 80E of the Income Tax Act provides provisions for tax deductions on educational loans. This is available only for the interest component of the loan. This can only be claimed once the loan repayment has commenced.
A part of our hard-earned money goes towards paying Income Tax to the government, with almost every taxpayer hoping to find avenues which can reduce the tax burden on his/her income. While it is not possible to avoid paying tax, there are certain tax deductions available to citizens. One such deduction is mentioned under section 80E of the Income Tax Act, catering to the educational arena.
Education is one area towards which we pay a lot, spending huge amounts to arm ourselves and our loved ones with degrees. The government, in a bid to encourage higher education offers income tax deductions to pursue such courses.
Section 80E of Income Tax Act
Section 80E of the Income Tax Act provides provisions for tax deduction on educational loans. Such loans can be availed for higher studies of the spouse or children of a taxpayer, with the deduction available only on the interest component of said loan.This essentially means that any interest paid by an individual towards clearing an educational loan qualifies for deduction under Section 80E.
Tax deduction towards payment of interest can be claimed only after an individual has started repaying the loan, and can be claimed only in the particular years when interest is being paid on the educational loan.
Deductions under Section 80E
Section 80E provides for tax deduction only on the interest component of an education loan for higher studies. The principal amount cannot be claimed for deduction under this section. Deductions can be claimed from the start of first repayment till 7 more repayments are made, that is, a total of 8 deductions are available with respect to the interest component. Higher education, under Section 80E refers to education after completing the Senior Secondary Examination or its equivalent.
Deductions can be claimed towards repayment of loans for vocational training as well.
Eligibility for Tax Deduction under Section 80E
There are certain eligibility criteria associated with tax deductions available under Section 80E of the Income Tax act, some of which are mentioned below.
- Only individuals are eligible for tax deductions under this section. Hindu undivided families and companies cannot avail deductions under this section.
- Deduction can be claimed only on the interest component of a particular educational loan.
- Only those loans availed from recognized financial institutions and charitable organizations are eligible for tax deduction. Loans obtained from friends or relatives are not eligible under this section.
- Loans can be taken by a taxpayer towards fulfilling the educational commitment of either himself/herself or his/her spouse or children.
- Deduction can be claimed only if the loan is availed for purpose of higher education.
- Deduction can be availed only for 8 years, beginning from repayment from the first year.
- Deduction can be claimed only if the loan is taken under the name of taxpayer.
Quantum of Deduction
Higher education can be an expensive affair in today’s economic conditions. Section 80E does not have an upper limit which can be claimed for tax deduction, provided that deductions are claimed only for 8 years. This deduction is not available for the principal amount and only interest is considered for deduction.
FAQs on Section 80E
- Does Section E come under Section C?
- In case the education loan is taken for studies outside India, can I still claim benefits under Section 80E?
- Is there a limit to the maximum deduction I can claim?
- Can HUFs claim tax benefits under Section 80E?
- Can companies claim tax benefits under Section 80E?
Section E provides deductions on any interest that is paid on an education loan, while Section 80C provides deductions on the tuition fee.
Yes, you can claim benefits under Section 80E even if the education loan is taken for studies outside India.
No, there is no limit to the maximum deduction you can claim.
No, HUFs cannot claim tax benefits under Section 80E.
No, companies cannot claim tax benefits under Section 80E.