Section 80E of Income Tax

Section 80E of the Income Tax Act of 1961 allows taxpayers to claim a deduction for the interest paid on loans taken for higher education. This provision is designed to alleviate the financial burden of education loans and encourage individuals to pursue higher education.

The deduction under Section 80E is available only under the old regime. It applies to interest paid on a loan taken for the higher education of the taxpayer, their children, spouse or if he acts as the legal guardian of the students.

Also Read: Tax Deductions and Exemptions under the New Tax Regime

Only individuals can claim deductions on the interest paid on education loans under Section 80E of the Income Tax Act of India. This kind of deduction is not available for HUFs or other taxpayers.

In simple words, the education loan must be taken for the higher education of oneself, a spouse, children, or a student for whom the individual is a legal guardian. Parents are also allowed to claim the deduction under Section 80E of the Income Tax Act 1961 for the loan taken out for their children's higher studies.

Also Read: Section 80EEB of Income Tax Act

To claim deduction under Section 80E, certain criteria need to be met, such as:

Loan Source

The loan should be taken from a financial institution or any approved charitable institution. Loans from relatives or friends do not qualify for this deduction.

Purpose of the Loan

The loan must be taken to pursue higher education. This includes vocational courses and studies pursued after passing the Senior Secondary Examination or its equivalent from any school, board, or university recognised by the central government or state government, local authority, or any other educational authority authorised by the government to do so.

Eligible Individuals

Individuals can claim this deduction on the interest paid on the loan for themselves, their spouse, children, or a student for whom they are the legal guardian while filing returns under the old regime.

Deduction Tenure

This deduction is available only for 8 years starting when you repay the loan. Individuals can claim the deductions annually if they fall within the 8 year period or until the education loan interest is paid, whichever is earlier.

The deduction permitted is for the entire interest amount paid on EMIs throughout the financial year. There is no limit to interest deduction under section 80E. of Income Tax.

While there's no 80E maximum limit for deduction amounts, individuals must obtain a certificate from their bank. This certificate should clearly state the interest and principal amounts of the education loan for that particular financial year.

Example of section 80E deduction limit:

Let’s assume that an assesee has applied for a loan 6 years back of the principal amount ₹ 10 lakhs. He pays 6% interest on the loan amount every year with the monthly payment. He wants to take a deduction for the same while filing an income tax return under the old regime for the assessment year 2024-2025.

The calculation for net taxable income after deduction under section 80E:

The deduction period for interest on loans starts in the year the individual starts repaying the loan. This tax deduction benefit is only available for 8 consecutive years from the year they start repaying the loan or until the interest is fully paid, whichever is earlier.

In simple words, if the loan is completely repaid in 5 years, then the tax deduction under section 80E is allowed for 5 years only, not 8 years. Furthermore, if a loan tenure somehow exceeds the 8-year limit, then individuals can not claim a deduction for the interests paid beyond 8 years.

Loan Agreement or Sanction Letter

A copy of the loan agreement or the sanction letter from the financial institution or approved charitable institution from where the education loan was obtained. This document should clearly state the terms and conditions of the loan, including the amount sanctioned, the interest rate, tenure, and the purpose of the loan.

Interest Certificate from the Lender

An interest certificate from the lending institution is crucial. This certificate must detail the amount of interest paid during the financial year on the education loan. The certificate should segregate the principal and interest components of the payments made during the year.

Proof of Payment

Receipts or statements that serve as proof of payment of the interest on the education loan during the relevant financial year, like bank statements, are necessary. These documents should correspond with the information in the interest certificate provided by the lender.

Details of the Educational Course and Institution

Documentation that provides details about the higher education course for which the loan has been taken. It should include the name and duration of the course and the name and address of the institution, whether it is in India or abroad. For example, admission letters, course brochures, fee receipts, or any other relevant documents.

PAN Details

The Permanent Account Number (PAN) of the borrower is required for verification and processing of the deduction claim under Section 80E.

Step 1: Ensure Eligibility

First, confirm that the loan has been taken from a financial institution or an approved charitable institution specifically for higher education. The loan should be in your name, and the interest repayment period for claiming the deduction is limited to 8 years, starting from the year in which you begin repaying the interest.

Step 2: Collect Necessary Documents

Gather all required documents, including the loan agreement or sanction letter, interest certificates from the lender for the relevant financial year, bank statements showcasing interest payments, and any other proof of interest payments. These documents serve as evidence of the interest paid on the education loan.

Step 3: Calculate the Interest Amount

Determine the total amount of interest paid during the financial year. This will be the amount eligible for deduction under Section 80E. Remember, only the interest portion of the repayment is deductible, not the principal amount.

Step 4: File Your Income Tax Return

When filing your Income Tax Return (ITR), include the interest amount paid on the education loan as a deduction under Section 80E. This section is designated explicitly for deductions related to education loan interest payments in the ITR form.

Also Read: Income Tax Return (ITR) - How to File ITR Return

There are some tips to maximise deduction under Section 80E of the Income Tax Act 1961, such as:

Early Repayment of Loan

The deduction under Section 80E is available for 8 years or until the interest is paid off, whichever is earlier. This means you can claim the deduction for the 8 years of the loan repayment period. Hence, it is crucial to repay the education loan within 8 years.

Maintain Proper Documentation

Another crucial tip is to make sure that you have all the loan documents, interest certificates and repayment details from your lender. Accurate records will help in claiming the maximum deduction without any issues during tax filing.

Ensure Loan is for Recognised Course

Another crucial tip to maximise income tax Section 80E benefit is that the education loan must be for recognised courses. If your education loan is not for recognised courses, it may not qualify for Section 80E.

Avoid Delays in Repayment

If you delay repayment and have unpaid interest, you will miss out on the deduction for that particular year. Always stay on top of your repayments to ensure you do not lose out on deductions.

Also Read: Tax Saving Options Other than 80C

Understanding Section 80E of the Income Tax Act is crucial for individuals who have taken education loans for higher studies. This section of the Income Tax Act helps reduce individuals' tax liability.

However, before applying for a deduction under Section 80E, individuals should be aware of the various implications associated with it.

In addition to Section 80E, individuals can also claim a deduction on health insurance plan premiums paid. Under Section 80D of the Income Tax Act, a maximum of ₹50,000 is a deduction available for premium paid for health insurance for parents or senior citizens.

For individual medical insurance plans for people under 60, taxpayers can claim a deduction of ₹25,000 on the premiums paid.

Besides the tax benefit, a health insurance plan offers financial security to individuals and their families in times of medical crises. TATA AIG offers a range of health insurance plans that are tailored to meet your specific health needs.

Moreover, our health insurance plans also offer attractive tax benefits under Section 80D of the Income Tax Act, giving you the dual advantage of securing your health while reducing your tax liabilities.

Also Read: Section 80D: Deductions for Medical & Health Insurance