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 loans 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.
Such 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 recognised financial institutions and charitable organisations 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.