Section 80E – Tax deduction on Education loan for higher studies

An individual is eligible for income tax deduction under section 80E of Income Tax act only if education loan has been taken for the purpose of his or her higher studies or higher studies of spouse or for any children or student for whom such individual is a legal guardian.

Section 80E tax deduction on education loan will be available only if the loan has been taken from a bank, financial institution or an approved charitable institution.

Eligibility for tax deduction on education loan – Section 80E

A salaried person or a self employed or any other individual who has taken education loan either in his or her name for own education or for the purpose of higher education of spouse or any child or the student of whom the taxpayer is a legal guardian can claim income tax deduction under section 80E for the interest amount paid towards education loan.

As tax deduction on education loan is available only in the year of payment, tax payer can not claim such deductions if payment of education loan has not yet started.

Section 80E tax deduction is not available on principal portion of your education loan. This provision has been withdrawn from assessment year 2006-2007. From AY 2006-2007 onwards, tax deduction under section 80E is available only on interest portion.

Meaning of higher education – Section 80E

Higher education as mentioned under section 80E of Income Tax act includes all fields of studies including vocation studies pursued after passing the senior secondary examination or its equivalent.

To get eligible for tax deduction on education loan in India, the tax payer or the eligible relatives as mentioned above have to utilize education loan for higher studies.

It does not matter whether such education loan is taken for higher studies in India or abroad. If education loan has been taken for higher studies in foreign countries then interest payments of that loan is also eligible for tax deduction under section 80E provided all other conditions of this section is fulfilled.

How much and When you will be eligible for tax deduction

If you fulfill all conditions of section 80E of Income Tax act 1961 then you will be eligible for the entire amount of interest paid for your education loan as tax deduction during the financial year.

Deduction under this section is allowed from the year of making payment till the end of such payment or 7 succeeding assessment years which ever is earlier. In total, deduction under section 80E is available for 8 assessment years starting from the year in which first interest payments are done.

This means, if entire payments are done in five years time limit then tax deduction under section 80E will be available for five years only not for the 8 years.

Other relevant points

• No tax Deduction on education loan under section 80E will be available for the principle amount of loan.
• You need to take a certificate from your bank and produce it before your employer for claiming tax deduction under section 80E. Such certificate should specifically segregate the principal and interest portion of education loan paid by you during the financial year. This certificate is also required for your future requirement as a proof for income tax deduction under section 80E.
• To claim the benefit of section 80E for interest on education loan, you need to plan for paying the entire loan amount in 8 assessment year starting from the year of your first payment.

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 which ever 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 which ever 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.