Section 80E Education Loan- complete detailsPlanning for higher education ? Worried about education loan for your child ?
This article will give all answers to your queries regarding loan for higher education , which is deductible under section 80E.This article will spell out every requirement ,restrictions and benefits of Section 80E.
What is Section 80 E ?
Section 80E under Income Tax Act 1961, allows the taxpayer to avail deduction with respect to education loan taken.Such loan may be taken for himself , his spouse , children or the child of whom he is legal guardian.
What does Section 80E cover?
- What is deductible?
Section 80E covers deduction with respect to only interest part of the loan for higher education.The most pleasant fact is that the deductible interest has no ceiling.Hence any amount of interest would be availed as deduction under section 80E.
- How much is deductible?
As mentioned in the first point , there is no upward ceiling , which means that any amount of interest will be deductible.
- Who can claim deduction?
Any individual who has taken loan for himself , his spouse , his children or for the children of whom he is legal guardian(for e.g.- adopted child).
Only condition would be that the loan should be taken his own name and repayment has to be done from his taxable income.
- What are the restrictions for claiming the deduction?
Deduction under Section 80 E is allowed only where
a. Interest has been actually paid during the previous year ,
b. Interest has been paid out of taxable income,
c. Loan for Higher education is taken from Scheduled banks or approved financial institutions ,
d. Loan is taken for pursuing higher education , which would mean courses after SSC (Secondary School Certificate) exams or equivalent.
e. Earlier this section was applicable only for full time courses , however there has been an amendment.This section will now cover vocational courses also .
f. Loan has been taken in India to fund higher education anywhere.Hence this covers higher education taken abroad also.There is no need that higher education should be pursued in India.
g. Deduction for loan for higher education would cover interest , tuition fees and also incidental expenses like hostel fees etc.
Period for deduction
Section 80E stipulates the time period for which the deduction can be claimed.Deduction can be claimed for an initial assessment year and succeeding 7 assessment years.This deduction is restricted to such total 8 assessment years or full payment of interest by assessee, whichever is earlier.
Initial assessment year refers to the assessment year with respect to previous year , in which the taxpayer will start paying the interest on the loan.
Validity of tax benefits
Tax benefits start from the year once the repayment starts and will cease once the period of eight years ends or interest is paid in full by the taxpayer.
Where the loan exceeds the period of eight years , interest cant be claimed beyond such 8 years.
Cases not covered by Section 80E
a. This section does not extend to principal repaid on loan , hence principal repaid is not to be considered for calculating the deduction under section 80E
b. Advantage of this section can be taken by individual only. This implies that the deduction is not allowed to be availed by any other person than individual.However , individual can be self employed or salaried individual for claiming the deduction .
c. Loans taken from friends , relatives or any other non approved institutions wont be eligible for claiming the deduction.This is explicitely mentioned in the provisions of section 80E.
d. Interest on the loan taken for higher education is not allowed to be deducted for a period of more than assessment years.
e. If the loan for higher education is taken in the name of your spouse, your children or your relatives , then you wont be eligible to claim the benefit of deduction.
Points to remember :
- Moratorium Period
This period refers to the period when the loan is not serviced . This means that repayment is not done during this period.However , if taxpayer opts to pay interest during such moratorium period , then moratorium period would be included in the period of 8 assessment years.
- Statement for loan
Always remember to ask for the statement of loan which would segregate the principal and interest paid for servicing the loan.This would be important document for certifying the deduction of interest paid under section 80E.
- Place of loan and place of higher education
Deduction of interest on loan for higher education is determined on the basis of place of loan and not on the basis of higher education. Hence even if the higher education is not pursued in India, deduction will be allowed , provided loan is taken in India.
- Relation of taxpayer
Even if the loan is taken for the adopted child , the taxpayer can clam the deduction.This is because , the taxpayer would act as legal guardian in this case.
- Cumulative interest payment
Deduction under section 80E is allowed on the payment basis.If taxpayer fails to pay interest for few years and pays everything together in one year , then he will be allowed deduction of total interest paid in that previous year.
The Income Tax department encourages higher education , by allowing the deduction under Section 80E.This is relatively unknown section , but we have tried to summarize important facts in this article.we hope you would appreciate this effort.Keep reading.