Section 80E of Income Tax Act (Explained)
Section 80E of the Income Tax Act provides tax deductions on educational loans. Interest paid on education loan repayments in India is tax deductible under Section 80E of Income Tax Act of 1961. This is only available for the interest portion of the loan. This is only claimable after the commencement of loan repayment.
What is section 80E of income tax act
Section 80E provides a deduction to an individual for the amount actually paid during the previous year out of his income chargeable to tax by way of interest on the loan, taken from any financial institution or any approved charitable institution for the purpose of pursuing higher education of self or any of the relative( i.e spouse, children of the assessee or student for whom the individual is the legal guardian).
What is the maximum amount of deduction under section 80E?
The allowable deduction is the total EMI interest payable during the financial year. There is no limit to the maximum deduction amount, but an individual must obtain a certificate from the bank. The certificate must list separately the interest and principal of the education loan for the year. There are no tax incentives on the principal amount, preferably the interest rates are the same.
What is the period of deduction under section 80E?
You can claim Section 80E deductions for a maximum period of eight assessment years. However, if you close the loan account early, the income tax deduction will be valid for the remaining portion of the active time.
You have taken an education loan in AY 2021-22 and started paying interest in the same year.
In this case, you can claim a deduction u/s 80E for AY 2021-22 to AY 2030-31 (i.e. 8 assessment years).
Consider a different scenario in which you have repaid the entire loan in only 5 years.
In this case, you can claim a deduction u/s 80E for AY 2021-22 to AY 2025 – 26 (i.e. till completion of the loan).
Who can claim deductions under 80E?
- Only individuals can claim tax deductions under this section. Hindu undivided families and businesses cannot claim deductions under this section.
- Deductions are only for the interest portion of certain education loans.
- Only loans made by qualified financial institutions and non-profit organizations are tax deductible. Loans received from friends or relatives are not permissible under this section.
- Taxpayers can take loans to meet their own or their spouse’s or children’s education obligations.
- Can claim deductions if the loan is for study purposes.
- The deduction is only available for 8 years, starting with the first year of repayment.
- The deduction is permissible only if the loan was in the taxpayer’s name.
How is the 80E deduction calculated?
The calculation for Section 80E tax deduction is as follows:
|Less: Interest repaid (Deduction u/s 80E)
|Net Taxable Income
The interest repayable (Rs 3,00,000) on the education loan is permissible as a deduction from the taxable income (Rs 12,00,000). As a result of which the taxable income and the tax payable are lower to Rs 9,00,000.
Which are notified financial institutions under section 80E?
The notified institutions are as follows:
Financial institution – A financial institution is defined as any bank that operates in accordance with the Banking Regulation Act, of 1949.
Charitable institution – A charitable institution can be defined as an organization that has the authority set forth in Section 10, Clause 23C.
What documents are required for availing of section 80E?
You do not need to provide any documentation when filing your Income Tax Return to claim tax deduction under section 80E. However, you should have the following documents readily available for a future audit by the Income Tax Department:
- An education loan agreement approved by the lender
- Statements of repayment, and a certificate of interest from the lender
These documents are sufficient evidence to verify the 80E deduction claimed while filing a tax return.
Frequently Asked Questions (FAQs)
Can I claim 80E while filing ITR?
Yes, you can claim income tax deductions under 80E when you file an income tax return.
Can parents claim an 80E deduction?
Yes, parents can claim an 80E deduction. The benefits of this deduction can be claimed by both parents and children. This means that the deduction can be claimed by anyone who pays off student loans, whether the child or the parent.
Can I claim Section 80E benefits if I have taken an education loan to study outside India?
Yes, you can claim section 80E benefits if the education loan is taken for studies outside India.
Can a company apply for Section 80E tax benefits?
No, companies cannot claim Section 80E tax benefits.
Education is where we spend large sums of money to obtain a degree for ourselves or our loved ones. To encourage higher education, the government offers an income tax deduction of u/s 80E for completing such courses.
The tax deduction for interest payments can only be claimed after you start paying off the loan and can only be claimed during the year the interest on your education loan is paid.
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