Section 80E for Interest on Education Loan: A portion of our hard-earned money goes to the government in the form of income tax and every taxpayer will practically think to lessen the income tax. While it is impossible to avoid paying taxes, individuals can make use of tax deductions to reduce the tax amount. There are several sections under the income tax department that allows deductions for various schemes. Of all the deductions, Section 80E is specially allocated to provide tax deductions for educational loans. This section 80E is only available for the loan’s interest component and any individual can claim this deduction only after the loan has started to be repaid.
- What is Section 80E of Income Tax Act?
- Section 80E With Example
- Who is Eligible for 80E Deduction?
- What is the Maximum Limit under Section 80E?
- Period of Deduction on Education Loan
- How do I Claim Deductions under Section 80E?
- Tax Benefits of Education Loan Under Section 80E
- FAQs on Section 80E Income Tax Deduction
What is Section 80E of Income Tax Act?
The Income Tax Act’s Section 80E allows for a tax deduction on educational loans. Such loans can be used for the further education of a taxpayer’s spouse or children, with the interest component of the loan being the only part of the loan that can be deducted. This essentially means that any interest paid to repay student loans is deductible under Section 80E.
Only when an individual has begun repaying the loan can he or she claim a tax deduction for interest paid, and only during the years in which interest is paid on the educational loan.
Section 80E With Example
For example, if your education loan’s total EMI is Rs. 12,000, and the main component is Rs. 8,000 and the interest component is Rs. 4,000, you can only claim Rs. 4,000 every month. As a result, you can claim Rs. 48,000 as a tax deduction for the entire EMI paid on the loan for the financial year.
Who is Eligible for 80E Deduction?
The officials of income tax have specified the eligibility criteria specifying the individuals who can claim this deduction. Any individual meeting the following conditions can claim the income tax deductions under Section 80E:
- Only individuals are eligible for tax deductions under this section.
- Only the interest component of a specific educational loan is eligible for a deduction.
- Tax deductions are only available for loans taken out from recognised financial institutions and charitable organisations.
- The loan should be used only for higher education purposes.
- The deduction is only available for 8 years, beginning with the first year of repayment.
- One can claim the deductions, only if he/she takes a loan on their name.
The following people are not eligible to claim the Section 80E deductions under Income Tax Act:
- This section does not apply to loans if the individual borrows loans from friends or relatives.
- Under this section, Hindu undivided families and businesses are not eligible for deductions.
What is the Maximum Limit under Section 80E?
The overall interest portion of the EMI paid during the financial year is deducted. There is no maximum limit on the amount that can be deducted. However one will have to obtain a certificate from the loan lent organisation. The main and interest portions of the education loan you paid during the financial year should be separated on such a certificate.
The whole amount of interest paid will be deducted. The principal repayment is not eligible for a tax credit.
Period of Deduction on Education Loan
The interest on a loan is deducted starting in the year in which you begin repaying the loan. It is only available for 8 years, beginning the year you begin repaying the loan or until the interest is fully returned, whichever comes first.
This means that if the loan is repaid in full in 5 years, the tax benefit will only be available for 5 years, not 8. It’s also worth noting that if your loan term exceeds 8 years, you won’t be able to deduct the interest you paid after that. As a result, it is generally desirable to repay an education debt within eight years.
How do I Claim Deductions under Section 80E?
While filling out the ITR-1 form, the individual must declare his/her income information. Apart from filing the income information, one can claim the income tax deductions under sections 80C to 80U of the income tax act. While claiming the deductions, one can mention the deductions under Section 80E.
Tax Benefits of Education Loan Under Section 80E
Section 80E of the Income Tax Act of 1961 allows anyone who has applied for a loan for higher education to benefit from tax savings. Even if a person has taken the maximum allowed deduction of INR 1,50,000 under Section 80C, they can still take advantage of Section 80E.
Note that Section 80C allows for a deduction for education fees paid, whereas Section 80E allows for a deduction for interest on a loan accepted for higher education.
FAQs on Section 80E Income Tax Deduction
Question 1.
Is interest on education loans tax deductible?
Answer:
Yes, under Section 80E of the income tax act, the interest paid on an education loan is deductible.
Question 2.
Who can claim deduction u/s 80E?
Answer:
Depending on who repays the education loan first, the tax benefit can be claimed by either the parent or the child (student).
Question 3.
When a loan is taken for the education of a child the father is entitled to deduction under section?
Answer:
The benefit is available to both parents and children, meaning that whoever pays the education loan, whether parent or child, can begin claiming this deduction.