Taking an education loan? Know your tax benefits

Published: September 25, 2019 12:44:29 AM

Deduction under Section 80E is available for the year in which the individual begins to pay interest on the educational loan and continues till seventh succeeding year. Only individuals can claim deduction under Section 80E.

The educational loan should be taken from any financial institution or any approved charitable institution. (Illustration: SHYAM Kumar Prasad)The educational loan should be taken from any financial institution or any approved charitable institution. (Illustration: SHYAM Kumar Prasad)

By Poonam Gandhi

Education plays an essential role in the overall development of any country. In order to promote education, interest paid on an educational loan is allowed as a deduction under Section 80E of the Income Tax Act, 1961.

Deduction under Section 80E is available only in respect of interest paid on the educational loan. Such educational loan should have been taken for the purpose of ‘Higher Education’ of the assessee himself or for the ‘relative’ of the assessee.

In order to understand deduction under Section 80E, as explained above, it is important to understand two terms, namely, ‘Higher Education’ and ‘Relative’.

Higher education has been defined under Section 80E as any course of study pursued after passing the senior secondary examination or its equivalent. Such course can be pursued from any school or university or board recognised by the state or Central government or any local authority or any other authority which is authorised by the state or Central government.

Relative has also been defined under Section 80E, which means spouse and children of the individual. It also includes the students for which the individual is the legal guardian.

Conditions to be fulfilled for claiming deduction under Section 80E:
Deduction under Section 80E is available only to an individual.
Deduction of only ‘interest’ paid on the educational loan taken for higher education is available under Section 80E.
The educational loan should have been taken for the higher education of the assessee himself or the spouse or the children (including adopted children and students for whom the assessee is a legal guardian).

The educational loan should be taken from any financial institution or any approved charitable institution.
For claiming deduction under Section 80E, it is mandatory to obtain a certificate from the bank certifying the interest payment on the educational loan taken by the assessee.

There is no maximum limit under Section 80E. In other words, the entire interest paid towards the education loan for higher education is available as a deduction under Section 80E.

Period of deduction available under Section 80E:
Deduction under section 80E is available for the year in which the individual begins to pay interest on the educational loan and continues till seven succeeding years. In short, deduction under Section 80E is available totally for eight years beginning from the year in which the individual begins paying interest on the educational loan.

There is no maximum limit under Section 80E. The total amount of the interest paid for educational loan taken for higher education is available as deduction under Section 80E. Only individuals can claim deduction under Section 80E. Deduction under section 80E is not available to Hindu Undivided Family (HUF), company, Association of Persons (AOP), Body of Individuals (BOI) etc.

The writer is a chartered accountant
Source: Tax Guru

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