Section 80E Deduction: Interest on Education Loan
 

When you take an education loan in India for higher studies, the same has to be paid back in the form of Equated Monthly Instalments (EMIs) every month, along with a certain proportion of interest applicable to these repayments. While this increases the EMI amount, the interest amount is eligible for a tax^# deduction.

Under Section 80E of the Income Tax Act, 1961, the interest repaid during a financial year can be claimed from your total income while filing tax returns. You can learn more about the Section 80E deduction in the upcoming sections.

What Is Section 80E Of the Income Tax Act?

As a legal guardian, a parent, or a spouse, you can take an education loan in India on behalf of your children (biological or adopted) or spouse for their higher education. This education loan will qualify for an education loan tax benefit under Section 80E. The education loan should be taken from a recognized/authorized financial institution or a charitable trust to qualify for the tax benefit.

To understand this better, a financial institution should be a bank or a lender that offers education loans and operates as per the Banking Education Act of 1949. A charitable trust can only be called so if the entity is listed as per clause 23C under Section 10 of the Income Tax Act.

Hence, if you have availed of the loan from your employer or a relative, the Section 80E tax benefit will not be applicable since neither can be identified as a financial institution or charitable trust.

 

Eligibility Criteria to Get Tax Deduction under Section 80E

To understand the eligibility for the tax deduction under Section 80E, let us first look at the tax benefit that can be availed of under this section.

You can claim this deduction for an education loan taken for higher education only – which includes all vocational as well as regular courses pursued after the senior secondary examination. If the senior secondary examination is not applicable, any equivalent examination will be accepted as long as it is from a government-recognized school/institute/university.

Section 80E Deduction Limit

When calculating your total income as an individual, you can calculate the tax deduction under Section 80E as per the provisions under this section. If you have repaid a certain amount of the loan in the previous year, the total interest amount in that year will be deducted from your taxable income.

Since there is no minimum or maximum 80E deduction limit, you can claim the deduction on the interest repaid as per the loan repayment schedule for every year. If you repay the loan in the next 8 years, you can claim the deduction for each of those years.

For example, you have a total income of ₹6 Lakh per year, which is also your taxable income, and have availed of an education loan. When you start repaying the loan yearly, the interest amount comes to ₹1 Lakh.

When you avail of the Section 80E deduction, ₹1 Lakh will be deducted from your taxable income of ₹6 Lakh. This will bring your taxable income to ₹5 Lakh, and then you will have to pay a reduced amount of tax as your tax slab will be lowered.

 

Time Limit for Claiming the Deduction Under Section 80E
 

You can claim the tax deduction under Section 80E if you take an education loan for your child, for your spouse or even for a student who is under your legal guardianship. The interest amount paid for the financial year will qualify for tax deduction from your taxable income.

• While there is no limit on the deduction amount, you can only avail of the deduction for up to 8 years or until the complete interest has been repaid - whichever happens first. This means that if you have repaid the loan in 6 years then you are eligible for tax deduction for 6 years and not 8 years.
• If you want to make the most of the Section 80E deduction, you may consider closing the education loan within a repayment tenure of 8 years. The education loan and the tax deduction not only apply to higher education in India but also in a foreign country in case the student wants to study abroad.

Documents Required to Claim the Deduction Under Section 80E

It is important to note that no one other than the taxpayer who has applied for the loan can claim the tax benefits under Section 80E. One of the primary benefits of availing of the Section 80E deduction is that there is minimal documentation involved during the process.

To claim the deduction, all you need to do is:

• Show the physical and original certificate from the sanctioning institution - charitable trust or financial institution.
  
  
• This certificate should clearly and separately mention the following details for the education loan taken for that financial year:
  
  

  ✔     The principal amount.

  ✔     The interest amount.