Income Tax Deduction 80E (Interest on Education Loan) A.Y. 2022-23: The interest on an education loan is available for an income tax deduction. You can get a deduction under section 80E of the Income Tax act in your taxes for higher education of self, spouse or children or as legal guardian. In this article, we will discuss deduction under section 80E for interest on loans taken for higher education. You may have been wondering how people these days reduce their tax liability by a dramatic amount with the aid of deductions through education loans. Well, the trick is simple and clean. As a taxpayer, you are just required to plan your expenses and things will automatically fall in your favour. So, let us understand how we can claim a deduction by paying interest on education loans.
What is Deduction 80E?
The deduction 80E allows people to claim the deduction in respect of interest paid towards the repayment of higher education loans*. Any amount which the taxpayers pay towards the interest on the educational loan of self, spouse or children or for a student for whom the individual is the legal guardian.
Check Deduction 80C – Recommended
Eligibility for Deduction 80E
A person has to satisfy various conditions in order to become eligible for deduction 80E. Here are some of the most common ones:
a) Status of the Assessee: The benefit of this section is only applicable to individuals. None other than an individual is allowed to claim a deduction under the aforesaid section, entities like HUF, Firms and Companies have been specifically excluded.
b) Applicable amount of Deduction: There is no such upper limit for deduction. The whole amount which has been paid as interest on education loan qualifies as a deduction under this section. Sadly, there are no benefits available in respect of payment towards the loan’s principal amount.
c) Loan from a recognized institute: An important factor in the applicability of Section 80E is the associated party. The lender should be a recognized organization under the Government. A loan from a family member, relative, unorganized loans, etc., do not qualify for a deduction under this section.
d) Tenure of Deduction: The benefit of this deduction is available for a continuous period of 8 years. For an instance, if you are claiming a deduction 80E in the AY 2022-23 & A.Y. 2021-22, then the same can be claimed for the next 7 immediate years as well. However, if the loan is full repaid before 7 years, then the final repayment year will become the tenure for the deduction.
e) Intent of Loan: Earlier, the benefit of Section 80E was available under higher studies only and included courses such as Bachelor’s degree, Master’s degree, etc. In 2010-11, a change was introduced whereby the scope was broadened and people can now use this section to claim deductions for education loans taken after the Senior Secondary Examination. There is no maximum limit that is allowed as deduction 80E.
f) Person Availing the Loan: The most important factor in considering a deduction 80E is the borrower. You can only avail the benefit of deduction if the education loan is in your name. No other names, including your spouse, siblings or children will qualify.
To sum up, let’s take one quick example and clear the smallest of doubts. Suppose Mr Sharma has taken an education loan of INR 50, 000 from ICICI Bank for his child’s higher education on 01.01.2017 @ 10% pa. So, can he get benefits under Section 80E?
The answer is YES! Mr Sharma can claim a deduction under Section 80E for the AY 2022-23. Additionally, he can also continue to claim the same for the next 7 years. He would be eligible for a deduction of INR 5, 000 every year.
1) 50, 000 x 10% = 5, 000
2) It has been assumed that the interest is charged under Simple Interest and no other form of associated expenses occurred while availing loan from ICICI bank.
*Higher education means any course of study pursued after passing the Senior Secondary Examination or its equivalent from any Govt recognised school, board or university.