Tax Benefits on Educating Yourself under section 80E

Section 80E Tax Rebate for Higher Education

Education is the essence of life. Great Man B. King has once said

“The beautiful thing about Educations is that no one can take it away from you.”

Educating yourself is rewarding in itself but you also get income tax break for doing so. The entire amount you pay as interest on education loan can be claimed for exemption.

Eligibility for Section 80E

These are the conditions:

  1. Education loan should have been taken from a bank or other financial institution or government recognized charitable organization for higher education.
  2. Higher education means full-time graduate or post graduate course in medicine, engineering, management or post-graduate course in applied sciences or pure sciences including mathematics and statistics.
  3. Should be paying interest out of your income for education loan for yourself, spouse, children or anyone whose legal guardian you are.

You can claim income tax deduction on the interest part of your education loan for eight consecutive years. In order to claim rebate under section 80E you must furnish bank statement and declare it while filing your Income Tax Returns.

Maximum deduction limit under section 80E

The entire interest portion of the loan can be claimed for tax exemption for a maximum of eight years of loan repayment. Please note that there is no benefit available on the repayment of principal amount of the loan.

Frequently Asked Question on Section 80E

Q. Who is eligible for deduction under section 80E?

A. Education loan should be taken by Individual (not to HUF or other type of Assessee).

Q. Is loan taken in name of any family member is eligible for deduction.

A. NO, Loan should be taken by Assessee HIMSELF. If loan is taken in name of any relative then he/she is not eligible for deduction.

Q. What is eligible amount?

A. The amount eligible for deduction is repayment of education loan interest.

Tax Benefit of Higher Education under section 80EQ. Which expenses are covered?

A. The loan includes not only tuition or college fees but also other incidental expenses for pursuing such studies like hostel charges, transport charges etc.

Q. How much amount is deductible?

A. There is no limit for amount of repayment of interest. Unlimited amount of interest can be deducted under this section.  However there is no benefit available on the repayment of principal amount of the loan.

Q. If loan is taken / money is borrowed from friend or relatives to repay the loan then same is deductible?

A. You can deduct the entire interest amount from your Taxable Income only.

Q. Can loan be taken for any education?

A. The loan should be taken for the purpose of higher education and

Q. Can higher studies be pursued outside India?

A. There is no condition that the course should be in India.

Q. For what tenure / how long deduction can be claimed?

A. This deduction is available 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.

Initial Assessment year means previous year in which assessee starts paying the interest amount.

Q. What is meaning of higher education?

A. Higher education means ” any course of study pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognized by the Central Government or State Government or local authority or by any other authority authorized by the Central Government or State Government or local authority to do so;

Income tax department has added (W.e.f. A.Y. 2010-11)  additional fields of studies (including vocational studies) pursued after passing the Senior Secondary Examination or its equivalent from any school, Board or University recognized by the Central or State Government will also be covered under deduction in respect of interest paid on loan taken for higher education.

Q. Can loan be taken from relatives?

A. The loan should be taken from any financial institution or any approved charitable institution. (in simple main Banks are covered).  Interest on Loan taken from relatives or friends will not be eligible for deduction under section 80E.

Q. What is meaning of charitable / financial institution?

A. Approved charitable institution means an institution specified in, or, as the case may be, an institution established for charitable purposes and  [approved by the prescribed authority] under clause (23C) of section 10 or an institution referred to in clause (a) of sub-section (2) of section 80G;

Financial institution means a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act); or any other financial institution which the Central Government may, by notification in the Official Gazette, specify in this behalf;

Q. Can loan be taken for relatives?

A. The loan should be taken for higher study of himself or studies of relative. Earlier to previous year 2006-07 the above deduction was available only for Interest on loan taken and repaid by the assessee for his own studies.

Q. Who is relative?

A. Relative under this section means the in relation to an individual, means the spouse and children of that individual the student for whom the individual is the legal guardian.

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