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What is Section 80E, Deduction on interest on higher education loans ?
Section 80E education loan deduction is a tax benefit available to individuals who take out loans for higher education. This deduction applies solely to the interest paid on the loan, not the principal. It can be claimed for a maximum of eight years, beginning from the year in which the interest payments start.
Who is Eligible to Claim a Deduction Under Section 80E?
The deduction for interest paid on an education loan can only be claimed by an individual and is not available to Hindu Undivided Families (HUFs) or any other type of taxpayer. The loan must be taken for the individual's higher education, spouse, children, or a student for whom the individual is the legal guardian. Parents can easily claim this deduction if the loan is taken for their children's higher education.
Note: This deduction is only available to those taxed under the old tax regime.
What is the Tax Deduction limit under Section 80E?
The deduction allowed under section 80E is for the total interest paid on the education loan during the financial year. There is no upper limit on the amount that can be deducted.
However, you must obtain a certificate from your bank that separates the principal and interest portions of the EMI paid during the financial year. Only the total interest paid will be eligible for the deduction, as no tax benefits are provided for principal repayments.
What is the period of Deduction u/s 80E?
The period of deduction under section 80E is maximum of 8 years.
The deduction for interest on an education loan begins in the year you start repaying the loan. It is available for a maximum of 8 years, starting from the year you begin repaying the loan, or until the interest is fully repaid, whichever comes first.
This means that if the loan is repaid in 5 years, the tax deduction will only apply for those 5 years, not the full 8 years.
Additionally, if your loan term exceeds 8 years, you will not be able to claim a deduction for any interest paid beyond the 8-year period. Therefore, it is recommended to repay the education loan within eight years to maximize the benefit.
Who is Eligible for 80E Deduction on Education Loan?
To qualify for the 80E education loan deduction, the following criteria must be met:
1. Individual Borrower: The deduction can only be claimed by an individual and is not available to Hindu Undivided Families (HUFs) or other types of taxpayers.
2. Loan Purpose: The loan must be taken for the higher education of the individual, their spouse, children, or a student for whom the individual is the legal guardian.
3. Tax Regime: The deduction is available only to individuals who are paying taxes under the old tax regime.
4. Repayment Start: The deduction is applicable from the year in which the borrower starts repaying the loan.
5. Duration: The deduction can be claimed for a maximum of 8 years or until the interest is fully repaid, whichever occurs first.
Where can one apply for education loans for claiming 80E deduction ?
To qualify for a deduction under section 80E, the loan must be obtained from:
1. Bank
2. The financial institution, or
3. An approved Charitable organization
Loans borrowed from friends or family members for higher education are not eligible for this deduction.
What is the Objective of an education Loan on Section 80E?
An education loan deduction can be claimed only if the loan is taken for pursuing higher education. This applies whether the studies are in India or abroad.
Higher education refers to all courses undertaken after completing the senior secondary examination or its equivalent. It includes both vocational and regular courses.
What are the tax Exemption limits for claiming deduction on education loans under Section 80E?
The interest paid on an education loan can be deducted from your income in the same way as deductions under Section 80C and Section 80D, before determining your total income for tax calculation. However, unlike other sections, there is no cap on the amount you can claim under Section 80E. You can claim the full amount of interest paid during the financial year as a deduction, regardless of the amount.
For example, If your gross taxable income after other deductions is Rs. 8 lakh and you repay Rs. 1,50,000 in education loan interest, your taxable income would reduce to Rs. 6.5 lakh, and tax would be calculated accordingly.
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