When you take an education loan for the higher studies, then the deduction is allowed towards interest on educational loan u/s 80E of the Income Tax Act for the payment of Interest paid towards this loan. Various forms of higher studies (including vocational courses) are covered under this section 80E for claiming the deduction. However, these courses should be pursued only after the completion of Secondary Examination or its equivalent.
Conditions that must be satisfied to claim deduction towards interest on educational loan u/s 80E
- The assessee should be an Individual Tax Payer. This deduction under section 80E is not allowed to an HUF or to any other assessee.
- The deduction under this section is only towards payment of the Interest on the loan was taken
- The loan has been taken from an Approved Charitable Institution or from a Bank /Financial Institution.
- This loan is taken for higher education for the assessee, spouse of the assessee or children of the assessee or for a student for whom assessee is a legal guardian
- The Interest is paid by the assessee from his income which is chargeable to tax
The maximum amount of deduction allowed under section 80E
- Interestingly, provided assessee fulfills all the specified conditions stated above, there is no limit on the amount of deduction, the assessee can claim the whole amount of interest paid on such loan as a deduction under section 80E. \
- The deduction under this section is available for a period of 8 years or till the payment of such interest is made, whichever is earlier.
- Therefore, the deduction has to be claimed in 8 consecutive years by the assessee or earlier when the interest is paid in full.
Some other Important Points to be considered while availing deduction towards interest on educational loan u/s 80E
- There would be no deduction for the repayment of the principal amount for the purpose of Income Tax and only the amount paid as Interest on such Loan will be allowed as a deduction while filing the Income Tax Return.
- This deduction under this section in an addition to the deduction Rs. 1, 50,000 allowed under Section 80C and as mention above there is no such maximum limit for claiming under section 80E.
- This Deduction under 80E is not only restricted to the courses pursued in India but also eligible for courses pursued outside India.
- Education Loans taken from family, friends and relatives do not qualify for deduction under Section 80E and only Loans are taken from approved Charitable Institution or any Financial Institution are allowed as Deduction under this Section.