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Understanding Section 80E Income Tax deduction on Education Loan Interest


Understanding Section 80E Income Tax deduction on Education Loan Interest


Education is the cornerstone of personal and professional growth. Pursuing higher studies not only enhances knowledge but also opens doors to numerous opportunities. However, the cost of education, especially for advanced degrees or courses abroad, can be substantial. To alleviate the financial burden, the Indian government provides a significant benefit through Section 80E, offering tax exemption on the interest paid on education loans. Let's delve into the details of this tax-saving provision and explore how it can ease the financial strain of educational pursuits.


 

Table Of Contents

 

What is Section 80E Income Tax deduction?

Section 80E of the Income Tax Act 1961 is a provision designed to provide relief to individuals repaying education loans. This section allows for the deduction of the entire interest paid on the loan from the total taxable income, providing significant financial relief to taxpayers.


Who Can Avail This Deduction?

Only an individual can claim a deduction of the interest paid on an education loan. It is not available to HUF or any other kind of taxpayer. To qualify, the loan must be taken explicitly for the higher education of the individual, their spouse, or their children or for a student for whom the individual serves as the legal guardian. This allows parents to easily avail themselves of this deduction when financing the higher studies of their children.


From where can one obtain an education loan?

Education loans taken from approved financial institutions, charitable institutions, or government-recognized banks for pursuing higher studies in India or abroad are eligible for deduction under Section 80E. 

Note: Loans from friends, relatives, or unapproved institutions are not eligible.


Reason for obtaining the loan?

The eligibility for claiming an education loan deduction is contingent upon the purpose of the loan, which must be for the pursuit of higher studies. Whether the education loan is intended for higher studies within India or abroad is immaterial. 


What do you mean by Higher studies for section 80E

Higher studies encompass all fields of study undertaken after completing the senior secondary examination or its equivalent. This category encompasses both vocational and regular courses.


Tax Exemption on Education Loan Interest

Full Deduction on Interest: The entire interest paid on the education loan during the repayment period is deductible under Section 80E. Unlike other deductions with fixed limits, there is no upper cap on the amount that can be claimed.

For example, if your gross taxable income, after considering other deductions, is Rs 15.7 lakh, and you repay Rs. 3,42,000 as the interest component of the education loan, your taxable income for calculation purposes would be Rs 12.28 lakh, and it would be taxed accordingly.


No Limit on the Loan Amount: Section 80E does not impose any restrictions on the loan amount. Whether you've taken a substantial loan for a professional degree or a smaller one for a diploma, the entire interest can be claimed as a deduction.


However, You need to obtain a certificate from your Bank. Such a certificate should segregate the principal and the interest portion of the education loan paid by you during the financial year. 

The total interest paid will be allowed as a deduction. No Tax benefit is allowed for the principal repayment.


The deduction is available for the period

The eligibility period for the deduction on interest begins in the year of initiating loan repayment. This deduction is applicable for a maximum of eight years, commencing from the year of the first repayment or until the interest is entirely repaid, whichever comes first.