The provisions of Section 80E of the Income Tax Act, 1961, specifically cater to educational loans. This section offers deductions that apply to the interest component of these loans. Moreover, these deductions can only be claimed by individuals once repayment for a said loan has started. Taxpayers can avail these loans for themselves or on behalf of their children, spouse, and students who are their legal wards.
For instance, let’s say Ram had taken a loan for higher studies and is now paying back the loan amount in EMIs. He will be able to claim interest on education loan deduction, which is offered on the interest components of EMIs.
Individuals need to meet certain eligibility criteria to claim tax deductions under Section 80E of Income Tax Act:
Taxpayers have to keep these documents handy to claim tax deductions under Section 80E:
Individuals availing a loan for higher education have to procure a certificate of the same from a financial institution or charitable institute that has provided this loan. This certificate must represent the proper bifurcation of principal and interest amount of the loan which has been availed for the financial year.
These deductions on the interest portion start from the year in which a taxpayer starts repaying the loan amount. However, once an individual starts the repayment, he or she can avail deductions under Section 80 for a period of 8 years or until the interest amount is fully repaid (whichever is earlier).
Hence, if a taxpayer repays the full loan amount within a period of 5 years, tax deductions can be availed for a period of 5 years only. For example, let’s say Rohan had availed an educational loan for higher studies and he started repaying the same in 2019. He’ll be able to claim tax deductions on the interest portion of the EMIs from the same year.
If he repays the loan amount by 2027, i.e. 8 years, he can claim the deductions throughout the whole repayment process. However, if he pays off the full loan amount by 2024, he will only be able to claim deductions for 5 years only and not 8 years.
As mentioned above, the provisions under Sec 80E of Income Tax Act, 1961 allows individuals to claim deductions only on the interest component of the loan availed for higher studies. Hence, no tax exemptions can be claimed by taxpayers on the principal part of the loan amount.
However, these deductions can only be availed during the years in which interest is paid on the loan amount. Further, there is no maximum limit attached to the deduction amount.
An individual who has availed a loan for higher education can enjoy various tax benefits as per the provisions of the Income Tax Act. Suppose a taxpayer has already claimed the maximum amount of deductions (Rs. 1,50,000) available under Section 80C. He or she will still be eligible to avail 80E deduction as there is no ceiling attached to the deductions.
You can claim the Section 80E deduction beginning with the year you begin repaying the loan. The deduction is only available for eight years, beginning with the year you begin repaying and ending when you have entirely repaid your interest, whichever comes first.
Section 80C of the Income Tax Act allows for a deduction for tuition costs paid for education. Section 80E of the Income Tax Act, on the other hand, allows for a deduction for interest paid on educational loans taken out for higher education.
No, you cannot deduct the main amount of your EMI under section 80E. Only the interest portion of the EMI is deductible.
There is no upper limit to the amount that can be deducted.
No, corporations cannot receive Section 80E tax breaks.