Deductions u/s 80E

21 Oct 2022

Section 80E

Interest Paid on the Education Loan and related deduction of Income Tax for the purpose of Tax Saving Benefit

If you have taken any Education loan for the purpose of the Higher studies whether in India or outside India, from the Financial Institution or Charitable Institution then the amount paid as an Interest on such Loan shall be eligible for claiming the Benefit of the deduction from the Gross Total Income.

 

Note-  Deduction shall be available under this section only for the Interest Component.

 

Eligible Assessee:  Section 80E provides deduction to an individual-assessee in respect of any interest on loan paid by him in the previous year out of his income chargeable to tax.

 

Conditions: The loan shall be taken for the purpose of pursuing his higher education or for the purpose of higher education of his or relative. The loan must have been taken from any financial institution or approved charitable institution.

 

Restriction: Such deduction shall be claimed by the Individual Assessee only . No Any other Assessee Including the HUF can claim the benefit of such deduction.

 

Period-  The Deduction shall be available from the Financial from which the Interest on such loan start paying. The benefit of the such Interest shall be available only upto the 8 Consecutive assessment years only not beyond that period.

 

Example- 1

Mrs. Alicia has taken three education loans on April 1, 2021, the details of which are given below-


Ans-

The amount of the Eligible Deduction in respect of repayment of Interest of all the above loans would be-

 Deduction under section 80E = Rs 96,000 + Rs 80,000 + Rs 1,60,000 = Rs 3,36,000


Example-2

Shashi Rekha has taken an education loan for her son who wanted to study abroad. So we had taken an educational loan for 20 lakhs from IDBI. At the time of approving the loan Financial Institution said they will give top-up (Increasing the limit later when required) but then refused.  So she reached Axis Bank and took another 12 lacs by doing balance transfer (Transfer of the Loan) and Axis bank had closed the IDBI loan and took over to Axis bank with 20+12 = 32 lakhs loan.

The IDBI loan sanctions and started disbursing from the Year 2015. Axis Bank Take over the loan in 2018. Shashi was claiming IT benefits from 2015-2016. So whether she can claim the IT benefit 2015-2016 till 8 years or Axis bank takes over 2018+8=2026.

Ans

The deduction is allowed in computing the total income in respect of the initial assessment year , in which the assessee starts paying the interest on the loan and seven assessment years immediately succeeding the initial assessment year Therefore the Deduction benefit for the Shashi is available only upto the year of 2022-2023.

 

 

(iii) Meaning of certain terms:


 (a) Relative-  Spouse and children of the individual or the student for whom the individual is the legal guardian

 (b) Higher education- It means any course of study (including vocational studies) pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognised by the Central Government or State Government or local authority or by any other authority authorized by the Central Government or State Government or local authority to do so. Therefore, interest on loan taken for pursuing any course after Class XII or its equivalent, will qualify for deduction under section 80E.

 (c) Period of deduction- The deduction is allowed in computing the total income in respect of the initial assessment year (i.e. the assessment year relevant to the previous year, in which the assessee starts paying the interest on the loan) and seven assessment years immediately succeeding the initial assessment year or until the interest is paid in full by the assessee, whichever is earlier.

 

(d) Approved charitable institution– It means an institution established for charitable purposes and approved by the prescribed authority under section 10(23C) or an institution referred to in section 80G(2)(a).

 

(e) Financial institution It means – (a) a banking company to which the Banking Regulation Act, 1949 applies (including a bank or banking institution referred to in section 51 of the Act); or (b) any other financial institution which the Central Government may, by notification in the Official Gazette, specify in this behalf


Rishabh Agarwal