Section 80E -- Interest on Loan for Higher Education can grant you Tax Benefit

CA Maneet Pal
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Section	Quantum Of deduction	Conditions
Section 80E	Amount paid during PY towards interest. Starting from the assessment year the assessee starts paying the interest, up to 8 assessment years or till the interest is paid whichever is earlier.	Must be an Individual. Loan from a financial or charitable institution.  For higher education. Amount should be paid from his taxable income.

Since education is very important to succeed in life. But higher education can be hard on the pocket of many and probably to the majority of the population. To ease this burden there are various financial institutions providing loans for the pursuing higher education. The Income Tax Act 1961 provides for deduction under this section.

Essential conditions for claiming this deduction:

1)      The deduction is available only to individual assessee.

2)      The individual must have taken a loan from (i) any financial institution or (ii) any approved chartable institution.

3)      The loan must have been taken for pursuing higher education. Such education must be of assessee himself or any of his relatives.

4)      The deduction shall be allowed only in respect of any sum paid by him, in the previous year by way of interest on such loan.     

5)      Such amount should be paid out of his income chargeable to tax.

Quantum of Deduction:

The amount paid during the previous year towards interest. Deduction shall be allowed for 8 assessment years starting from the assessment year in which the assessee starts paying the interest on loan, or until the interest thereon is paid by the assessee in full, whichever is earlier. The entire interest can be claimed as a deduction. There’s no limit to this deduction.

The term ‘Higher Education’ means:

Higher education means full time studies for any graduate or post graduate course in engineering, medicine, management or for a post-graduate course in applied sciences or pure sciences, including mathematics or statistics. From 2010-2011 assessment year the government has included all courses from various streams, which comprise of both regular and vocational studies.

The term ‘Relatives’ mean:

Relative in relation to that individual means the spouse and children of that individual.

The term ‘Financial institution’ means:

Any financial institution which the Central Government may, by notification in the Official Gazette, specify in this behalf; or a banking company to which the Banking Regulations Act, 1949 applies.

The icing factor:

Say you’ve consumed the whole of the limit of the Section 80C; still you can use this section to further gain tax benefit. Which would mean your liability to pay tax will be reduced as the interest on loan will be deductible from your taxable income.