Deduction in respect of interest on loan taken for higher education - Section 80E - Income Tax - Ready Reckoner - Income Tax

Deduction in respect of interest on loan taken for higher education - Section 80E The deduction under Section 80E is available to an individual if following conditions are satisfied: The deduction is available only to Individual not to HUF or other type of Assessee. The Individual must have taken a loan from: (a) Any financial institution, or (b) Any approved charitable institution Loan should have been taken for the purpose of pursuing higher studies of Individual, Spouse, Children of Individual or of the student of whom individual is legal Guardian. Hence parents are also eligible to claim deduction of interest paid by them on loan taken for their children s education. Amount of Deduction : The amount of interest paid is eligible for deduction and moreover there is no cap on the amount to be deducted. One can deduct the entire interest amount from the taxable income. However there is no benefit available on the repayment of principal amount of the loan. Deduction is available if Interest is been paid during the previous year and was paid out of income chargeable to tax which means if repayment is made from income not chargeable to tax than deduction will not be available. Deduction will be allowed only when actual interest is paid. Period of Deduction: Deduction shall be allowed in computing the total income in respect of the initial assessment year* and seven assessment years immediately succeeding the initial assessment year or until the interest is paid by the assessee in full, whichever is earlier. The tax benefits on education loan are only valid once you start the repayment and moreover they are only available up to eight years. For instance if your loan tenure exceeds eight years, you cannot claim for deductions beyond eight years. *Initial assessment year means the assessment year relevant to the previous year, in which the assessee starts paying the interest on the loan. Loan should be in the name of Individual: Deductions on education loan can only be claimed if the loan has been taken in your own name. If your parents, spouse or sibling has taken the loan for your studies, then you are not entitled to get tax benefit. The loan includes not only tuition or college fees but also other incidental expenses for pursuing such studies like hostel charges, transport charges etc. No deduction would be available if the education loan is taken from employer, family or friends. Deduction u/s 80E is available over and above deductions available under other sections covered under Chapter VI A of the Income Tax Act . The deduction u/s 80E can be claimed from the year in which you start paying interest on loan for higher education. If you have started paying interest within the same year of borrowing, then you can claim deduction for the payment of interest on this loan.