In this post, we will discuss the deductions under Section 80E of the Income Tax Act.
Here we discuss the following topics:
- What is Section 80E?
- Purpose of the loan
- Where should the loan be availed from?
- Limit for claiming deduction under 80E
- Eligibility Criteria
- Proof / Documents required to claim the deduction
What is Section 80E?
Section 80E under Income Tax Act covers the deduction on the interest paid on higher education loan. The loan can be taken from the financial/charitable institutions for the higher studies of self, spouse, or children (if legal guardian). You can claim this as a deduction from your taxable income.
Note: You cannot claim it if the loan was taken for siblings (brother/sister) or other relatives (in-laws, nephew, niece, etc.).
Purpose of the loan
The loan should be only taken to pursue higher studies. The educational loan can be either taken for higher studies in India or outside India.
Higher studies include all the fields of study both vocational and regular courses pursued after passing the senior secondary examination or its equivalent exam. However, the loan should be taken to study full-time courses only.
Where should the loan be availed from?
To claim the tax benefit of Section 80E, you need to take a loan from recognized:
- Financial institution – Any banking company to which the Banking Regulation Act, 1949 is applicable (include any bank/banking institution as per in Section 51) or any other Central Government certified financial institutions.
- Charitable institution – Any institution approved for the purpose of Section 10(23C) or 80G(2)(a)
Note: If you take the loan from any other entity, then it is not eligible for the deduction.
Limit for claiming deduction under 80E
Deduction amount under Section 80E
There is no maximum/ minimum deduction limit specified here. The interest rate as per the financial entity, loan amount, or any other factor does not impact the deduction amount on the interest payment.
However, the deduction under Section 80E provides a deduction on the actual interest paid in an FY.
Period of deduction
This deduction is applicable only for 8 years starting from the year when you start repaying the loan or until you repay the full interest whichever is earlier.
So, if the loan repayment is complete by 5 years, then the tax deduction is for 5 years and not 8 years.
If your loan payment exceeds 8 years, then you cannot claim the deduction for the interest paid after 8 years.
Either the parent or the child (student) can claim this tax benefit. It depends on who repays the education loan. The individuals can only claim this deduction but HUF or any other person cannot claim it.
Deduction under Section 80E is only applicable if you take the educational loan from a financial institution /charitable institution. It is not applicable if you take a loan from family members or friends and relatives.
Proof / Documents required to claim the deduction
If you claim the deduction under Section 80E while furnishing ITR then you need not submit any proof.
The list of documents you need to require to claim the deduction are:
- Loan sanction documents.
- Repayment statements from the financial institution /charitable institution. Such statements have a clear division of principal and interest amount repaid.
However, for a salaried employee, the employee can submit the statement to the employer so that employer can consider this deduction in Form 16.
With that, we have come to the end of this post. Share with us your queries in the comment section below.