Section 80E of the income tax act 1961 provides deduction of interest paid on education loans.

Government has introduced this section and encourages the people to avail more and more advantages of educational loans and at the same time avail the benefits under income tax in the form of deduction.

You can avail deduction of interest in the year of actual payment but before taking deduction you must know what the section 80E and what are the conditions and eligibility criteria.

In this article, we have completely explain the about Section 80E of the income tax act 1961 with examples.

     

    What is Section 80E of the income tax act?

    Section 80E provides the deduction from gross total income, which relates to deduction of interest payment on loan taken for higher education.

    Section 80E – Deduction of Interest Payment on Education Loan

    If a person takes a loan for pursuing higher education and starts making payment of EMI’s then he can claim deduction for interest part.

    Remember deduction is available only for the interest portion and not for the principal amount.

     

    Who is eligible for taking deduction under Section 80E?

    Deduction under Section 80E is allowed only to individual means HUF, Company, Firm etc. cannot avail advantage of this deduction.

    You can take education loan for higher education for:-

    • Yourself,
    • Your children (dependent or independent), or
    • For any student for whom you are legal guardian. 

    The person who is repaying the loan can avail deduction whether you are taking education loan for yourself or for your children or any student for whom you are legal guardian; in all the three cases you can avail deduction of interest payment.

    Also Read: Section 80GG: Eligible Deduction for Rent Paid

     

    What are the conditions for taking deduction under Section 80E?

    For taking deduction under Section 80E you must take care of the following:-

    • Education loan must be taken for pursuing higher education. Means loan can be taken for any education after passing senior secondary examination any equivalent examination that can be vocational courses or regular courses, deduction is available in both the cases.
    • Education loans must be taken from any bank, financial institution or approved charitable institution. If you are taking a loan from your friends or relative then in that case no deduction is allowed.
    • Deduction will be allowed for the interest portion only.
    • Education loans can be taken for pursuing courses in India or outside.

     

    What is the maximum exemption limit available under Section 80E?

    Deduction is available for the interest portion and not the principal amount. 

    If you are paying EMI Rs. 20000 per month including Rs. 10000 interest payment then your payment toward loan in a year is Rs. 240000 (including Rs.120000 interest). So you can avail deduction of Rs. 120000 in a year.

    There is no maximum exemption limit for deduction under section 80E. The whole (100%) interest paid can be taken as deduction.

     

    Example

    Mr. A took two education loans for himself and his son on 01-04-2021.

    Particular

    Self (Loan) Rs.

    Son’s (Loan) Rs.

    Amount of loan

    1000000

    1500000

    Repayment of Principal Amount (during FY. 2021-22)

    200000

    300000

    Repayment of Interest (during FY 2021-22)

    80000

    120000

    Then the total deduction of repayment of interest will be available to Mr. A under Section 80E during FY 2021-22 will be Rs. 2,00,000 (Rs. 80000 + Rs. 120000).

    Also Read: How to Get Education Loan Easily fromBank in India

     

    What is the document required for taking deduction under Section 80E?

    For claiming deduction under section 80E for repayment of interest on education loan, you must know how much you paid principal amount and interest amount during a financial year.

    So for this you need to reach your bank and ask for such a certificate which gives you the segregation details of your payment toward loan during the financial year.

    So in that certificate you will find the total interest paid during the year and that amount you can claim as deduction under Section 80E.

     

    How many years deduction can be taken for repayment of educational loan interest paid under Section 80E?

    Education loans can be of different tenures and every year the interest paid by you can be allowed as deduction.

    But deduction will start to be received only from the year in which actual repayment of interest has started.

    If a person takes out a loan for 6 year and he starts the repayment after 2 year. Then deduction will start from 3 year onwards.

    Deduction under section 80E will be allowed for the full interest paid during the year. But the point to be remembered is that deduction will be allowed for a continuous period of 8 year (maximum) starting from the year in which interest was paid for the first time.

    You cannot avail deduction for more than 8 years.

     

    Example

    If a person takes out a loan for 6 years and he starts the repayment in 3rd year. Then he can avail deduction in 3rd year, 4th year, 5th year and 6th year. After completion of 6 years he cannot take deduction anymore because the loan is closed in 6th year.

    At the same time if a person takes out a loan for 10 years and starts the repayment in 3rd year. Then in this case he can take deduction in 3rd year, 4th year, 5th year, 6th year, 7th year and 8th year.

    After completion of 8 years he cannot avail further deduction because maximum time limit for availing deduction on interest is 8 years, no matter that your loan tenure is still pending. But if you paid the whole loan in a period of 8 years then you can take deduction for the whole interest, so if you close the loan in 8 years it is more beneficial for you.

    Also Read: Section 80C Deduction: 9 Types of TaxSaving Investments

     

    Summary

    Section 80E of the Income Tax Act 1961 for deduction on interest payment on education loan encourages the  people to take more educational loans for pursuing higher studies whether in India or in foreign. You can avail the deduction under section 80e for interest paid on education loan and save the taxes.

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