Sec 80E – Deduction in respect of interest on loan taken for higher education
To promote the higher education in India, the Government of India desired to provide a tax deduction on the interest component of higher education loans. However, the deduction is provided only for the interest part of the EMI. There is no tax benefit for the principal part of the EMI
However, the deduction is provided only for the interest part of the EMI.
- Eligible Assessee
An Individual assessee who has taken out a loan for the purpose of pursuing higher education or for the benefit of a relative pursuing higher education from any Financial Institution or approved Charitable Institution can avail such tax relief.
- Conditions:
- The Assessee should be an Individual (i.e. Deduction not available to any other taxpayer),
- Loan should be taken for pursuing his higher education or for the purpose of higher education (in India or abroad) of his or her relative.
- Loan should be sanctioned by a FI (i.e bank or specified NBFCs) or approved Charitable Institution. So any loans taken from friends or relatives don’t qualify for this deduction.
- The deduction allowed is the total interest part of the EMI paid during the year out of his income chargeable to tax.
- Period of Benefit
- The benefit of deduction under this section would be available from the year in which the assessee starts paying the interest on such loan.
- It is available for 8 years including the year in which you start repaying the loan or until the interest is fully repaid whichever is earlier.
- Quantum of deduction
Deduction of whole interest payable is allowed, no limit to deduction amount.
- Whole Interest payable is allowed as deduction, there is no limit on the deduction amount.
- Further note that deduction is available only on Interest paid not on Principal payment.
- Do note that an individual taxpayer should obtain the interest paid certificate and keep the necessary documents such as tax invoice and loan documents handy at the time of filing of the return.
- Meaning
- Financial Institution: FI means
- A banking company to which the Banking Regulation Act, 1949 applies, or
- Any bank or banking institution referred to in section 51 of that Act and
- Any deposit taking non-banking financial company (NBFC) or
- A systemically important non-deposit taking NBFC i.e., a NBFC which is not accepting or holding public deposits and having total assets of not less than Rs.500 crore as per latest audited financial statements and is registered with RBI.
- Relative:
- In relation to an individual, relative means the spouse and children of that individual or the student for whom the individual is the legal guardian.
- Approved charitable institution:
- It means an institution established for charitable purposes and approved by the prescribed authority under section 10 (23C) or an institution referred to in clause (a) of sub-section (2) of section 80G.
- Higher education:
- It means any course of study including vocational courses pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognised by the Central Government or State Government or local authority to do so.
- Therefore, interest on loan taken for pursuing any courses after class XII or its equivalent, will qualify for deduction u/s 80E.
*Note:
Section 80C: Deduction in respect of the tuition fees paid for the education.
Section 80E: Deduction in respect of interest paid on educational loan taken for higher education.
Section 80G: Deduction against a donation made to a charitable organization or trust engaged in charitable activities.
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