Income Tax 80-E

Updated on : Aug. 27, 2022 - 4 p.m. 17 min read.

Section 80E of the income tax was introduced to provide some relief to taxpayers incurring high education expenses and the need to avail loans for meeting such expenses.

To elaborate further, an education loan taken on behalf of your spouse, children, adopted children, or student for whom the taxpayer is the legal guardian is applicable for deduction under section 80E.

Eligibility criteria:

  • Only individuals are eligible for tax deductions, Hindu undivided families (HUF) and companies cannot avail of deductions under this section. Also, loans taken from friends or relatives are not eligible under this section.
  • Income Tax Deduction can be claimed only on the interest component.
  • The benefit can be claimed by the parent as well as the child, which means that the person who pays the education loan whether parent or child can start claiming this deduction.
  • The deduction can be availed only if the loan is taken to finance higher education.
  • The deduction can be availed only for 8 years. You cannot claim for deductions beyond 8 years.
  • The deduction can be availed only if the loan is taken under the name of the person liable to pay taxes.

Deductions under section 80-E:

The deduction amount under Section 80E is only the interest paid on the loan taken for higher studies. This amount has no upper limit, you can get tax benefits on the entire amount of interest paid but not on the principal amount

Documents required for claiming deductions:

You, need to obtain a certificate from your Bank. Such a certificate should segregate the principal and the interest portion of the education loan paid by you during the financial year.

Notified financial institutions under Section 80-E:

Section 80E states that the interest paid towards an education loan should be taken from a recognized charitable institution or a financial institution. Any other entity from which the loan is taken is not eligible for the deduction. These institutions can be identified as follows:

  1. Financial institution - According to the Banking Regulation Act, of 1949, a financial institution is defined as any bank working according to the regulations defined in the Banking Regulation Act.
  2. Charitable institution - A charitable institution can be defined as an organization that has the authority as mentioned in clause 23C of Section 10.

Section 80E with example

Suppose Mr. A has taken an education loan of Rs. 10 lakhs to pursue an MBA in India. The loan carries an interest rate of 10% per annum and the tenure of the loan is 7 years. Mr. A starts repaying the loan after completing his MBA.

In the financial year 2022-23, Mr. A pays an interest of Rs. 1 lakh on the education loan. He is eligible for a deduction of Rs. 1 lakh under Section 80E. This means that his taxable income will be reduced by Rs. 1 lakh, and he will save tax on this amount at his applicable tax rate.

Assuming Mr. A continues to pay interest on the education loan for the next 3 years, he can claim deduction under Section 80E for the interest paid each year, subject to a maximum of 8 years or until the interest is fully paid, whichever is earlier.