Deduction in respect of payment of interest on loan taken for higher education under Section 80E

 

  • ·        
    Who can
    claim deduction under section 80E?

Only
an Individual can claim deduction under this section.

  • ·        
    Which
    kind of expenditure is eligible for deduction under section 80E?

If
loan is taken by an Individual for any study (i.e., any study after passing
senior secondary examination or its equivalent) from bank, financial
institution or an approved charitable institution, the amount of interest is
deductible in the year in which the interest is paid.

 “Financial Institution” means a banking company to which the Banking
Regulation Act, 1949 applies or any other financial institution which the
Central Government may, by notification in the Official Gazette, specify in this
behalf

  • ·        
    For whose
    education the loan should be taken?

Interest
is deductible if loan is taken for Individual’s own education or for the
education of his spouse, children or any student for whom the individual is the
legal guardian.

  • ·        
    What is maximum
    limit of deduction?

Entire
interest is deductible in the year in which the taxpayer starts paying interest
on loan and subsequent seven years or until interest is paid in full. In other
words, if the loan is repaid within four years, the deduction can be claimed for
such period only. However, interest should be paid out of income chargeable to
tax.

  • ·        
    Whether
    the deduction is also available for principal part of loan along with interest?

No.
The deduction under section 80E is available only in respect of interest part,
and principal part is not allowed for deduction under section 80E.

  • ·        
    Can
    anyone take deduction under section 80E, if the loan is taken for the purpose
    of higher education of his brother or sister?

No.
As it is clearly stated that, interest is deductible only if the loan is taken
for Individual’s own education or for the education of his spouse, children or
any student for whom the individual is the legal guardian, no deduction is
available in respect of interest on loan taken for the purpose of higher education
of his brother or sister.

  • ·        
    In whose
    name the loan should be taken in order to claim deduction under section 80E?

It
is the most important thing to remember that the loan should be taken in the
name of Individual, who is going to claim deduction in respect payment of
interest on that loan.

 

  • ·        
    Can an
    Individual claim deduction, if the loan is taken for study in abroad?

Yes.
This deduction is allowed even if the loan is taken for study in abroad.

  • ·        
    Whether
    the deduction is available, if the loan is taken from employer?

No. Deduction
under section 80E is available only when the loan is taken from bank, financial
institution or an approved charitable institution. Hence, no deduction under
this section is available if loan is taken from employer of taxpayer. The deduction
is also not available if the loan is taken from his family or friends. 

  • ·        
    Important
    point to note:

There
is also no maximum limit for rate of interest on loan taken. Thus, a taxpayer
can save maximum tax by way of deduction, if the rate of interest is high.

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