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Section 80E deduction under the Income Tax Act 1961 provides tax deduction for educational loans. The income tax deduction can be claimed on educational loans availed for higher studies of the spouse or children of a taxpayer. Section 80E deduction is available on the interest component of an educational loan after an individual has started repaying the loan.
The following are the eligibility criteria for availing Section 80E deduction
Deduction under this section can be claimed only by an individual who has taken a loan for higher education and paying interest on the same. It cannot be claimed by an HUF, company or any other type of tax payer. Till FY 2006-07, the deduction under this section was limited to loan taken by the assessee himself. However it was then modified to also apply to loans taken:
Although, the loan can be availed for education of the individual or his relative, deduction can be claimed only by the individual who has availed the loan for this purpose and is responsible for repaying the same out of his income.
Any individual who has applied for a loan for higher education can avail the benefits of tax saving provided by Section 80E of the Income Tax Act, 1961. Even an individual who has availed the maximum deduction of INR. 1,50,000 available under section 80C, they can still avail deduction under Section 80E.
The amount of interest paid is eligible for deduction and moreover there is no cap on the amount to be deducted. You can deduct the entire interest amount from your taxable income.
Section 80E Deduction available if Interest is been paid during the previous year and was paid out of income chargeable to tax which means if repayment is made from income not chargeable to tax than deduction will not available. Deduction will be allowed only when actual interest is paid.
The deduction is allowed only in respect of interest paid on loan taken for higher education. No deduction is available in respect of repayment of principal portion of loan taken for higher education.
You need to obtain a certificate from your Bank / financial institution or approved charitable institution from whom such education loan is been taken. Such certificate should segregate the principal and interest portion of the education loan paid by you during the financial year. The total interest paid will be allowed as deduction. No Tax benefit is allowed for the principal repayment.
To claim deduction under section 80E, the assessee needs to avail loan from any financial institution or a recognised charitable institution. Deduction Section 80E cannot be availed towards the interest paid to a relative or employer towards a loan taken for higher education.
Any Financial Institution to which Banking Regulation Act 1949 is applicable. It would thus, include banks and other banking companies. Financial institutions would also include institutions notified by the Central Government in its official gazette.
Loans for higher education can also be availed from any approved charitable institution. Approved charitable institution would mean an institution that has been established for any charitable purpose and approved by the relevant authority under the clause of 23C of Section 10. It would also include institutions referred to under Section 80G.
The deduction amount under Section 80E is only the interest paid on the loan taken for higher studies. This amount has no upper limit; you can get tax benefit on the entire amount of interest paid but not on the principal amount.
The deduction under section 80E is allowed only if the education loan was taken for higher studies. Higher studies refer to education after completing the Senior Secondary Examination (SSE). It includes both the vocational courses as well as the regular courses in India or abroad. Thus, loan taken for post graduate courses in medicine, management, engineering, applied science, etc. are covered under Section 80E.
The deduction under section 80E can be claimed from the year in which you start paying interest on loan for higher education. If you have started paying interest within the same year of borrowing, then you can claim deduction for the payment of interest on this loan. The maximum period allowed to claim deduction is up to 8 years starting the year in which you start repaying the interest on the loan or till the time interest is paid fully, whichever is less.
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