Income Tax efiling in India for FY 2023-24 (AY 2024-25)
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File ITR Now Hire eCA NowSection 80E Deduction on Interest of Education Loan taken for Higher Education
What is section 80E of income tax?
Section 80E covers the deduction on the “interest component” paid on higher education loan from notified financial or charitable institution. Interest paid on education loan taken for higher studies of self, spouse, or children (including for whom you are legal guardian) can be claimed as a deduction from the taxable income.
Who can claim tax benefit on interest paid on education loan?
The amount deducted from an education loan can be claimed by an individual, a spouse, children, and a legal guardian. The person repaying the loan of the above-mentioned persons may receive an 80E deduction benefit. If your parents share EMI payments, the rate at which parents pay interest on part of the EMI may be demanded by them and they may rest you subject to certain conditions.
What is the deduction amount u/s 80E?
No maximum or minimum withdrawal limit specified under section 80E. The amount deducted from interest deductions is not affected by the interest rate charged by the charity, the loan amount or any other item. This section provides for deductions from real interest rates paid during the financial year
To avail benefit u/s 80E, from where the loan should be availed?
If you want to claim 80E benefits, a loan must be taken from you:
- Financial Institution, or
- Center for the Poor.
Which are notified financial institutions under section 80E?
Section 80E states that interest paid on education loans should be taken from a reputable charity or financial institution. Any other loan entity is not eligible for a loan. These institutions can be identified as follows:
- Financial Institution - The banking company where the Banking Regulation Act applies, 1949 (including any bank or banking institution referred to in section 51 of that Act); any other financial institution provided by the Central Government.
- Indigent Care Center - A section 10 (23C) or 80G (2) (a).
What is the documentary proofs required to claim deduction under section 80E?
Deductions under section 80E are required when submitting your tax return and no documentary proof is required to attach it to it. The documents as mentioned below should still be kept secure, in the event that they need to be submitted to the revenue department in the event of a future inspection.
- Loan sanction documents.
- Payment statements from a financial institution or a charity. Such statements should contain a clear double that of the principal and the interest rate returned.
However, if you are a member of the pay class, you can send a statement to your employer to consider this deduction Form 16.
What is the period/time limit for claiming deduction?
Deductions under section 80E may be claimed for more than 8 years of testing. But in the event that you close your loan account soon, your income tax will be deducted at the reduced rate on which the loan was applicable. Example ,
- Take out an education loan for AY 2019-20 and start paying interest on the same year.
- In this case, you may want to deduct / s 80E from AY 2019-20 to AY 2026-27 (i.e. 8 years of testing).
- Now consider a different situation when you have repaid a total loan in just 5 years. In this case, you may want to deduct u / s 80E from AY 2019-20 to AY 2023-24 (i.e. until the debt is settled)
How to calculate the deductions for section 80E?
You can calculate tax benefits under section 80E as under For Example
Particulars
Amount
Income
Rs 6,00,000
Less: Interest repaid (Deduction u/s 80E)
Rs 1,00,000
Net Taxable Income
Rs 5,00,000
The repayment interest (Rs 1,00,000) on the education loan is deducted from the total income (Rs 6,00,000). As a result tax revenue was reduced to Rs 5,00,000.
Frequently asked questions
Can deduction u/s 80E be availed if the loan is taken for higher studies at a foreign university?
Yes, deductions can be obtained through foreign education. The auditor must be Individual and the loan must be from a financial institution or a designated beneficiary. But, a course, a college or a university can come from outside India.
Is deduction u/s 80E available if the loan is from a foreign university?
I work in a company and took an employee’s education loan for sending my son to the USA for further studies. The terms and conditions are exactly like that of a bank. Can I claim my interest amount under 80E?
What is the meaning of higher education for section 80E?
As mentioned above, the tax levied under section 80E is deducted from the amount of interest paid on education loans taken on higher education. Now, these higher subjects, as defined in the Act, are as follows:
- All courses taken after the successful completion of the 12th or equivalent class at any school, board or university recognized by the CG or SG or local council or any other accredited authority.
- Loans taken should be for full-time study only. The field can be anything like medicine, engineering, nursing, applied science, management and more. Temporary courses are not eligible for deductions below 80E. But it does include craft courses taken after completing grade 12.
- Loans taken should be for full-time study only. The field can be anything like medicine, engineering, nursing, application science, management and more. Temporary courses are not eligible for deductions below 80E. But it does include craft courses taken after completing grade 12.
- The course where loans are taken can be at a college or university outside of India.
- Loans should be taken Individually and the financial institution or beneficiary where the loan is taken should also be notified.
For what purpose loan should be taken for 80E?
Krishna Gopal Varshney
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