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April 23, 2021

Education loan deduction for FY 2021-22 as per section 80E

by Mahesh Mara in Income Tax

Education loan deduction for FY 2021-22 as per section 80E

An education loan helps you not only finance your foreign studies but it can save you a lot of tax as well. If you have taken an education loan 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. However, the deduction is provided only for the interest part of the Loan. There is no tax benefit for the principal part of the Loan taken. In this article discusses provisions related to Section 80E and its applicability.

Who is eligible for 80E deduction?

In order for a person to get eligible for 80E deduction the following condition must be fulfilled:

1. The person claiming the deduction must be an individual

 2. Loan must have taken for the purpose of his Higher Education or for the purpose of higher education of his relative.

3. Loan must have been taken from any financial Institution or approved charitable institution.

4. Loans taken from friends or relatives don’t qualify for deduction.

5. The course pursued must be any course of study (including vocational studies) pursued after Senior Secondary Examination (Class XII) or its equivalent.

6. The individual can claim the deduction for self, Spouse and children or the Student for whom the Individual is the Legal guardian.

For how much period the person can claim the deduction under section 80E?

Deduction under section 80E is available only for 8 assessment years starting from the year in which the individual start repaying the loan or until the interest is fully repaid whichever is earlier.

What is the amount of deduction under section 80E?

The deduction allowed is the total interest part of the EMI paid during the financial year. No tax benefit for principal repayment. There is no limit on the maximum amount which is allowed u/s 80E.

Bare act portion of the provision:

Deduction in respect of interest on loan taken for higher education

80E. (1) In computing the total income of an assessee, being an individual, there shall be deducted, in accordance with and subject to the provisions of this section, any amount paid by him in the previous year, out of his income chargeable to tax, by way of interest on loan taken by him from any financial institution or any approved charitable institution for the purpose of pursuing his higher education or for the purpose of higher education of his relative.

(2) The deduction specified in sub-section (1) 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 referred to in sub-section (1) is paid by the assessee in full, whichever is earlier.

(3) For the purposes of this section,—

(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;

(b)  “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;

(c)  “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;

(d)  “initial assessment year” means the assessment year relevant to the previous year, in which the assessee starts paying the interest on the loan;

(e)  “relative”, in relation to an individual, means the spouse and children of that individual or the student for whom the individual is the legal guardian.

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