As per the Income Tax Act, a taxpayer is allowed to claim deduction under Chapter VI-A for the Repayment of Education Loan (Section 80E) and for the Repayment of Home Loan. However, the deduction allowed for both these loans is different and in this article, we would mainly be focusing on the deduction allowed for Repayment of Education Loan. For Deduction allowed for Repayment of Home Loan please refer our article on Income Tax Deduction for Repayment of Home Loan.
Section 80E: Deduction for Repayment of Interest on Education Loan
If you’ve taken an Education Loan and are repaying the same, you can always claim deduction under Section 80E of the Income Tax Act for the Repayment of Interest on Education Loan. However, this deduction is only available to Individual and not to HUF.
Only an Individual can claim deduction under Section 80E for the Repayment of Interest on Education Loan provided that the Loan was taken for the Higher Education of Self or Spouse or Children or the Student of whom the Individual is the Legal Guardian. The Salient features of claiming deduction under Section 80E are mentioned below.
1. Amount and the Nature of Deduction
The Deduction allowed under Section 80E of Chapter VI-A is only for the Repayment of Interest on Education Loan and not for the purpose of Repayment of Principal Amount of Education Loan. At the time of availing the Education Loan, the Banks issue a Statement stating how much amount is to be paid per annum for Principal Repayment and how much amount is to be paid for Interest on Education Loan.
There would be no treatment of Repayment of Principal for the purpose of Income Tax and only the amount repaid as Interest on Education Loan is allowed to be claimed as a deduction while filing the Income Tax Return.
This deduction under Section 80E is over and above the Rs. 1,50,000 deduction allowed under Section 80C and there is no maximum limit for claiming this deduction under Section 80E.
2. Purpose of Education Loan
This Deduction under Section 80E is allowed only if the Education Loan was taken for the purpose of Higher Education of Self or Spouse or Children or the Student of whom the Individual is the Legal Guardian.
The Govt has also defined Higher Studies and it means any regular course pursued after clearing the Senior Secondary Exam. In the Budget 2009, the Finance Minister also extended this deduction to Vocational courses and any Education Loan taken from 1st April 2009 onward for the purpose of pursuing any Vocational Course would also be included in this Section along with Regular Courses.
This Deduction is not only allowed for courses pursued in India but also allowed for courses pursued outside India as well.
3. Loan from Organisations allowed for claiming Deduction
Deduction under Section 80E is allowed only if the Education Loan is taken from any Financial Institution or approved Charitable Institution. Education Loans taken from Relatives or Friends do not qualify for deduction under this Section and only Loans taken from any Financial Institution or approved Charitable Institution are allowed to be claimed as Deduction under this Section.
4. Period of Deduction
This deduction under Section 80E is allowed to be claimed in the year in which the Individual starts paying the Interest on Education Loan and in 7 succeeding years. Thus, this deduction is available for a maximum period of 8 years or until the Interest is repaid by the Individual in full (whichever is earlier)