Section 80E Education Loan

By | November 11, 2014
The entire amount of interest paid on an Educational loan taken from a banking Company under Banking Regulation Act or any other financial institution notified by the Central Government or approved charitable institution recognized under Section 10(23C) or referred to in clause (a) of sub-section (2) of section 80G for the purpose of full time course of education of the assessee, spouse or children or a student for whom the assessee is the legal guardian will qualify for deduction.  There will be no tax benefit on the principal repayment of the loan.

Education Loan:
Section 80E allows the entire interest paid on education loan as deduction from the assessment year relevant to the previous year in which the assessee begins paying interest and seven subsequent years.

Education Loan under Section 80E : The interest paid on education loan taken for higher education by a person for himself, his spouse or children is fully tax-deductible under section 80E. The main points of Education Loan are:

u/s 80E of The Income Tax Act 1961:
Only interest paid on an educational loan is allowed as deduction u/s. 80E of The Income Tax
Act, 1961, out of his/her income chargeable to tax i.e. Deduction will be allowed only when actual
interest is paid.
Loan should be taken by individual for pursuing higher education of self, spouse or his /her
children’s. Hence parents are also eligible to claim deduction of interest paid by them on
loan taken for their children’s education. (See Note 1)
Loan should be taken from approved financial institution(See Note 2) or from institution
established for charitable purposes and approved by the prescribed authority under clause (23C) of
section 10 or an institution referred to in clause (a) of sub-section (2) of section 80G.
Loan should be for full-time studies for any graduate or postgraduate course in engineering,
medicine, management or for post-graduate course in applied sciences or pure sciences including
mathematics and statistics; [From A.Y. 2010-11 see Note 3]
Deduction is allowed for a continuous period of eight years, starting with initial assessment year in
which the assessee starts paying the interest on the loan or until the interest is paid in full
whichever is earlier.
Notes: –
1) An Individual is also entitled to claim deduction u/s. 80 C of The Income Tax Act, 1961 upto
Rs. 1,00,000 in the year of payment in respect of as tuition fees (excluding any payment towards any
development fees or donation or payment of similar nature), whether at the time of admission or
thereafter,—(a) to any university, college, school or other educational institution situated within India;
(b) for the purpose of full-time education of self, spouse or his /her children’s;
2) financial institution” means a banking company to which the Banking Regulation Act, 1949 (10
of 1949) applies (including any bank or banking institution referred to in section 51 of that Act); or
any other financial institution which the Central Government may, by notification in the Official
Gazette, specify in this behalf
3) Definition of Higher education is proposed to be substituted by making a amendment as per
Finance (No. 2) Bill 2009. After the amendment Higher education would means any course of study
pursued after passing the Senior Secondary Examination or its equivalent from any school, board or
university recognised by the Central Government or State Government or local authority or by any
other authority authorised by the Central Government or State Government or local authority to do
so.

If you have taken an education loan in order to support higher education for yourself or for your spouse,
for your children, in that case you should be aware of the tax benefits that you are entitled to.
Following are the points which will help in knowing the tax benefits available on education loan, this
shall also reduce the cost of education and also lessen the burden on savings which occurs due to EMI
payment.
Deduction u/s 80 E
Sec 80 E provides deduction with respect to interest paid towards repayment of the education loan,
note only the interest component shall be allowed for tax deduction. There is no cap on the maximum
amount which can be claimed as tax benefit u/s 80 E. This section is highly beneficial for those who are
in higher tax bracket.

Since the deduction is available for the full interest cost, so for the person who is in the higher tax
bracket i.e. in 30% tax bracket, for him the effective cost will reduce by 30%.
Applicable Conditions
1. Deduction is allowable only to the individual assesse and not HUF
2. There is no maximum cap on the interest amount which can be claimed for the deduction.
However there is no tax benefit available on the principal amount paid back
3. Deduction is available if the interest is been paid for the same year i.e. previous year
4. Interest on loan taken from relatives and friends will not be eligible for deduction u/s 80 E.

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