Do you want to take a loan for higher studies? then you can also do tax planning for the same. If you have taken an education loan for higher studies and are repaying the same, then the interest paid on that education loan is allowed as a deduction from the total income under Section 80E.
The deduction is available only for the interest portion of the EMI. There is no tax benefit for the principal portion of the EMI.
What is Section 80E?
Section 80E of the Income Tax Act, 1961 provides deduction from total income on interest on loan taken for higher studies.
The loan must be taken for higher studies.
Who can claim this deduction?
This deduction is available only for an Individual. It is not available to any other kind of taxpayer. This deduction can be claimed by the individual for self, spouse, children, and a person for whom he/she is a legal guardian. The individual who is repaying the loan for the above-mentioned people can take benefit of the Section 80E deduction.
Deduction Amount U/s 80E
Section 80E deduction is over and above the ₹ 1,50,000 deduction allowed under Section 80C and there is no maximum limit for claiming this deduction under Section 80E.
This deduction is allowed under section 80E only for the repayment of interest on an education loan and not for repayment of the principal amount of the education loan.
So you will not get any tax benefit on the principal amount like on house loan repayment u/s 80C. Here you will get tax benefit on repayment of interest portion only.
Education Loan must be taken from
If an individual wants to claim this tax benefit then the loan must be taken from:
- Any Financial Institution, or
- Any Approved Charitable Institution
Documents Required to Claim Deduction u/s 80E
This deduction can be claimed at the time of filing your income tax return and there is no documentary proof are required to be submitted. The following documents as mentioned below should still be kept safely, in case required to be submitted to the income tax department in case of any future scrutiny.
- Sanction letter from financial institution or charitable institution
- The repayment Schedule/Statements from the financial institution or charitable institution and the statements should have a clear bifurcation of principal and interest amount repaid.
Note: If you are a salaried person then you can submit the statement to the employer so that deduction can be considered.
Deduction Period U/s 80E
This dedication can be claimed for a maximum of 8 assessment years. This deduction is available only for 8 years starting from the year in which you start repaying the loan or until the interest is fully repaid whichever is earlier.
If the complete repayment is done within 6 years, then the tax deduction is allowed for 6 years only and not for 8 years.
Frequently Asked Questions
Ans. Yes, the loan should have been taken from the notified financial institution or charitable institution. But, the course, college, or university can be from outside India.
Ans. Higher education” means any course of study pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognised by the Central Government or State Government or local authority or by any other authority authorised by the Central Government or State Government or local authority to do so;
Q Can I claim deduction for the principal amount?
Ans. No, only the interest part of EMI is allowed for deduction.
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