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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.
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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.
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.
It is only possible to claim the Section 80E deduction for the interest amount paid on the loan repayment.
Only individuals may avail of the tax deduction under Section 80E. Companies and Hindu Undivided Families (HUFs) cannot claim this deduction.
A loan to finance your child’s or spouse’s education from your relatives and friends does not qualify for this deduction.
Whoever is repaying the loan can avail of the tax benefit. Hence, the taxpayer repaying the loan can claim this deduction, be it the parent or the child.
If you want to claim the deduction under Section 80E, you should avail of the loan and qualify as a taxpayer under the income tax laws and records.
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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 lakhs 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 lakhs. This will bring your taxable income to ₹5 lakhs, and then you will have to pay a reduced amount of tax as your tax slab will be lowered.
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.
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:
✔ The principal amount.
✔ The interest amount.
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Can I claim the tax deduction benefit under Section 80E for the principal and interest portion of the education loan?
The tax deduction under Section 80E cannot be claimed for the principal amount of EMI. This deduction is only applicable for the interest amount paid for the whole year and is included in the EMI amount.
Can I avail of the tax benefit under Section 80E for higher education abroad?
Yes, you can avail of the tax deduction under Section 80E, even if the loan has been taken for your child’s/spouse’s higher education abroad. The deduction on loan also covers vocational courses along with regular courses.
What is the difference between the tax benefits under Section 80C and Section 80E provided for the education expenses incurred by the taxpayer?
You can avail of tax benefits on education loans under Section 80C and Section 80E of the Income Tax Act.
What should be the purpose of the loan that qualifies for the tax deduction benefit under Section 80E?
If you want to qualify for a tax deduction under Section 80E of the Income Tax Act, you must take an education loan for yourself, your spouse, your child, or any child under your legal guardianship.
However, note that only the interest amount repaid on the loan will be eligible for the tax deduction, not the entire loan EMI amount.
What is higher education as detailed under Section 80E?
Under Section 80E, higher studies will comprise all fields or areas of education/study one wants to pursue after clearing their senior secondary examination or any equivalent examination. This applies to regular courses as well as vocational courses.
Can I claim the tax deduction benefit under Section 80E while filing ITR?
Yes, you can claim the Section 80E tax deduction benefit while filing your income tax returns. Only ensure that you have the necessary documentation needed for the proof of the education loan as specified under the provisions of the section.
Can I claim the interest paid on the education loan from the previous years?
It is possible to claim the deduction under Section 80E, starting from the year of the loan repayment. This can be the interest paid on the loan in the past years. However, there is a timeline of 8 years until you can claim this deduction, starting the year of the loan repayment or until the interest has been repaid, whichever happens first.
Can a parent claim the tax deduction benefit under Section 80E?
Yes, if you are a parent who has taken an education loan for your child, then you can claim the tax deduction under Section 80E. However, you must be a taxpayer per the provisions of the Income Tax Department in India.
