An individual can claim tax deduction under section 80E if he has taken education loan for higher studies of self, spouse, children or a student for whom the individual is the legal guardian.
Remember, loan can be taken for higher studies of;
- children, or
- a student for whom the individual is a legal guardian.
To claim tax deduction under section 80C, education loan must be in the name of the assessee. If its taken for higher studies of assessee’s brothers or sisters, then tax benefits under section 80E will not be available.
Meaning of higher studies
To get eligible for tax deduction, loan must be taken for higher studies.
As per the terms of section 80E, it does not matter whether the loan has been taken for higher studies in India or abroad.
This means an individual can avail tax benefit under section 80E on interest paid for education loan taken for higher studies anywhere in the world.
Higher studies in this case include all type of vocational as well as regular courses pursued after passing the senior secondary examination or its equivalent exam.
Quantum of Tax deduction for interest on education loan
Deduction under section 80E is available only on interest portion of the education loan. Principal part does not qualify for tax deduction under section 80E. Entire interest repaid on education loan will be eligible for tax deduction. Section 80E does not have any restriction on quantum of tax deduction.
Deduction under section 80E is available only when you start the repayment.
Tax deduction is available up to 8 years starting from the year in which you start repaying the loan or until the payment of interest in full, whichever is earlier. This means if its repaid within 6 years, then tax deduction under section 80E can be claimed only for 6 years.
One of the most important factors to be remembered is that the education loan must have been taken from a bank or financial institution or from any approved charitable institution.
This means, loan taken from friends, relatives or employers are not eligible for tax deduction under section 80E of Income Tax Act 1961.
How to get tax deduction for education loan
If you are in service, inform your employer about the education loan you have taken and the quantum of interest you paid during the financial year.
You need to produce a education loan interest certificate from the bank to your employer. The certificate should segregate principal and interest portion of the education loan paid during the financial year.
Total interest shown in the certificate will be considered by the employer as the amount of deduction allowed under section 80E. By considering this benefit, your employer will calculate TDS on your salary.
In case, your employer missed it then you can claim section 80E tax deduction while filing your return of income. In this case, you are not required to submit any documents to tax department. However, if in future department asked for documents, then you need to produce it to them.
If you are a salaried individual, we suggest you to declare and submit proof of interest payments on education loan to employer or else employer will be deducting higher TDS on your salary.
Example to understand quantum of deduction:
Gross Total Income of Mr. XYZ for the previous year 2017-18 is Rs 4, 80,000. Education loan to pursue a MBA course taken in the year 2014-15 from a public sector bank is Rs.7, 00,000. During the year 2017-18, he has paid Rs 65,000 as interest and Rs.50, 000 as repayment of principal portion.
In the above case, Mr XYZ can claim tax deduction of Rs. 65,000 under section 80E for the financial year 2017-18. After claiming tax deduction, Mr XYZ’s total income will be Rs. 4 ,15,000 (Rs. 4 ,80,000-65 ,000).
FAQ on tax deduction on Education Loan – Section 80E
Question 1: When I can take tax deduction benefits on education loan under section 80E of income tax act?
Answer: Income tax benefit or tax deduction on interest amount of education loan under section 80E will be available from the financial year when you start repaying the interest and principal amount.
You can even repay the loan amount with interest at the time of studies and start claiming the income tax deduction under section 80E of Income Tax act.
But tax deduction under section 80E is allowed from the year of making payment till the end of such payment or 7 succeeding assessment years whichever is earlier.
Question 2: I have taken education loan for higher studies of my SON and to the same university I also paid certain amount as tuition fee. Please let me know if I can claim deduction under income tax act for these expenses?
Answer: Interest amount paid on your education loan will be tax deductible under section 80E of income tax act 1961 from the financial year when you started making payment for such loan up to 7 succeeding assessment years or till time of making payment whichever is earlier.
Tuition fee amount can be claimed as income tax deduction under section 80C of Income Tax act 1961 to the maximum amount of Rs 1, 50,000 assuming that you do not have any other investment as specified under Section 80C like investment in life insurance premium, investment in PPF etc
In your case the entire amount of interest paid will be eligible for income tax deduction under section 80E by assuming that you fulfilled all other conditions specified under this section (for detail please refer the article above).
If you have any other investment as specified in section 80C then together you can claim the benefit up to Rs 1, 50,000
Question 3 : This financial year I paid interest and principal amount of my education loan which was pending for last 3 years. Can I claim the benefit of paying the entire amount of interest or I am eligible only for one year of interest?
Answer: You are eligible for the entire amount of interest that you paid in this financial year as a tax deduction under section 80E of income tax act i.e. the interest amount of 3 years including this year.
Question 4: I have taken education loan for my adopted child’s higher education. Can I claim income tax benefit under section 80E?
Answer: Yes, Section 80E is available if you have taken any loan for the higher education of a child of whom you are a legal guardian.
Question 5: I have taken a loan from employer for my own higher studies. Can I claim income tax benefits under section 80E for the interest amount that I am repaying to my employer?
Answer: No, you can not claim any tax deduction under section 80E for the education loan that you have taken from employer.
If you are working for approved bank or approved non-banking financial institution or approved charitable institution as specified under section 80E of Income Tax act 1961 then tax deduction is available only if you have taken the loan from an approved bank or approved non-banking financial institution or approved charitable institution.
Question 6: My sister has taken a loan for my higher education which I am repaying now to my sister. Can I claim income tax deduction under section 80E of IT act?
Answer: No, you can not claim tax deduction under section 80E as you have not taken any loan.