Deduction under Section 80E is available in respect of loan from any financial institution or any approved charitable institution for higher education in India or abroad.
Who can claim the deduction?
The said deduction can be claimed by Individual for loan taken for education of self, spouse, children or any student for whom assesse is a legal guardian.
Higher education means full-time studies for any graduate or post-graduate course in engineering, medicine, management or for post-graduate course in applied sciences or pure sciences including mathematics and statistics.
Period for which deduction is available
Interest deduction is available for a period of 8 consecutive years starting from the year in which assesse starts paying interest.
Quantum of deduction
Unlike other sections, there is no limit on the quantum of deduction that can be claimed i.e. actual expenditure can be claimed without limit by the tax payer.
However, deduction under section 80E is available where interest paid during the previous year and was paid out of income chargeable to tax. Where, repayment is made from income not chargeable to tax than deduction will not available.
For example, if repayment is made from an account in which tax free dividend income accrues, then the tax payer will not be eligible for deduction.
Certificate from Bank or financial institution or approved charitable institution from whom such education loan is been taken.
The certificate must contain segregation of principal and Interest amount. No deduction shall be allowed for the principal repayment. The Loan should have been sanctioned in the name of assesse or individual for whom the loan is required.
Key points to note
- Higher education – this would mean studies beyond 12th Standard as the section refers to graduate or post-graduate course.
- Whether loan taken for part time course such as MBA part time program will qualify for deduction. The language of the section says, full-time studies for any graduate or post-graduate course in engineering, medicine, management or for post-graduate course in applied sciences or pure sciences including mathematics and statistics. Hence, for a part-time course, deduction would not be permitted.
- Loans from relatives will not be permissible for deduction under Section 80E. Only loans from banks are permitted.
Whether fees paid to bank can be claimed as deduction – the language of the section refers to interest. Hence, fees paid may not be eligible for deduction. In case you still want to take benefit of interpretation of this section with an aggressive view, then it would be ideal to make full disclosure along with the tax return to avoid penalties.