Have you been looking for options to avail an education loan? It is a great option if you plan to pursue your higher education in a reputed institution. And, yes! The government also encourages you to take such initiatives for your successful future and provides tax benefits as a reward for your education loan. And that is what Section 80E is all about! So, let us go ahead and understand what Section 80E means and who can make the apt use of it, and how.

 

What is Section 80E of the Income Tax Act?
 

Section 80E details the tax deduction benefits available on the interest paid on an education loan. It can be on the education loan taken for self, spouse, or dependent children. To qualify for the tax benefits, you must take an education loan from a notified financial institution or charitable institution.

 

According to the Banking Regulation Act, a financial institution refers to a bank or any other banking institution. And a charitable institution is the one approved under Section 10(23C).

 

An education loan taken from any other entity does not qualify for the consideration of tax deduction under the Income Tax Act, 1961.

 

Who Can Claim the Tax Benefit?
 

The tax deduction on the interest paid on the education loan applies to the person making the payment and under whose name the education loan is taken.

 

It can be for a family member such as a spouse, children, or for whom the individual is a legal guardian. However, the interest should get debited from the taxpayer's account.

 

What is the Maximum Amount for the Tax Benefit?
  

Under Section 80E of the Income Tax Act, no minimum or maximum amount is mentioned as the deduction limit. Therefore, the actual amount you pay as an interest to the education loan for the financial year qualifies for a tax deduction. And it is not impacted by the amount of education loan availed, rate of interest, etc.

For example, if your total gross income is ₹7,00,000, you pay an annual interest of ₹85,000, then the net taxable income is calculated as follows:

 

Total gross income	₹7,00,000
Less interest paid (Tax deduction as per Income Tax Section 80E)	₹85,000
Net taxable income	₹6,15,000

 

The interest amount paid gets deducted completely, reducing the taxable income to ₹6,15,000.

 

It is important to note that this deduction on the total income is over and above the tax deduction benefits applicable under Section 80C. For instance, the tuition fees paid towards education, the premium amount paid towards life insurance plans, etc., qualify for tax* deduction under Section 80C.

 

If you have availed of an education loan for your children, you must take the necessary actions to help your family repay the loan in case of your unexpected demise. A life cover will be an ideal solution for such scenarios. Life insurance quotes have become reasonable to make it affordable for a common man.
 

And, we provide a range of features that help you include life cover and a guaranteed¹ return on maturity. You can receive the guaranteed¹ return as a lump sum to repay the loan or as a regular income to pay the interest per your preference. And in case of your unexpected demise, your family can receive the death benefit to repay the loan and reduce the financial burden.

 

What Are the Conditions Applicable for Availing the Tax Deduction Under Section 80E?
 

To avail of the tax benefits under Section 80E, you must note the following conditions:
 

1. It applies to individuals and not to the HUF and a business entity.
2. It is applicable for the education loan taken for higher education. Higher education refers to courses applied after the successful completion of 12th grade and is applicable on full-time courses only.
3. Only the interest paid towards an education loan is considered for the tax benefit.
    

You must also ensure to receive a certificate from the financial institution to avail the benefits. The certificate should have the information related to the principal repayment and interest separately.

 

What is the Time Limit for Claiming the Deduction?
 

You can avail of the tax deduction benefit for the interest paid on an education loan when you start repaying the loan. The benefit will be applicable for eight assessment years or until the education loan gets completely repaid, whichever comes first.
 

It means if you have completed repaying the loan in five years, then the tax deduction benefit under Section 80E will no longer be applicable. Also, if the education loan extends beyond eight years, the tax benefit doesn't apply for the period beyond 8 years.
 

Conclusion
 

Section 80E of the Income Tax Act, 1961 provides a tax deduction on the interest paid towards an education loan. It is applicable for higher education only and can be availed for the education loan taken for self, spouse, or dependent children. The period for the deduction is eight assessment years from when the loan repayment starts. When the government provides such tax benefits, it is important to utilise the opportunities to pursue the best standard of education!

 

L&C/Advt/2022/Dec/3214