Income Tax Exemption for Interest on higher education loan

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Wednesday, December 9, 2009
This article is posted in Income Tax category and has 18 Comments so far.

income-tax-80e-education loan,exemption under section 80E,income tax india,income tax calculation,calculate income tax,deduction under section 80EMr.B VENKATESAN, a GConnect member sought certain clarification on income tax exemption available for the interest on higher education loan. This prompted us to present this brief on exemption under Section 80E.

If you have taken education loan to support higher studies of yourself, your spouse, or Children this article may be useful to you on claiming income tax exemption under Section 80E of Income Tax Act. Till 2006-07 exemption was available only for Interest on loan taken and repaid by the assessee for his own studies. This benefit has been extended now to higher studies of one’s spouse and children.

Now let’s see the features and conditions of Section 80E.

  • Deduction available to Individual.   HUF or other type of Assessees are not eligible.
  • Deduction amount: – The amount of interest paid is eligible for deduction and moreover there is no cap on the amount to be deducted. You can deduct the entire interest amount from your taxable income. However there is no benefit available on the repayment of principal amount of the loan.
  • Deduction 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 available.
  • Interest should have been paid on loan taken by him from any financial institution or any approved charitable institution for the purpose of pursuing his higher education. Interest on Loan taken from relatives or friends will not be eligible for deduction under section 80E.

  • 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;

  • Higher studies means full-time studies for any graduate or post-graduate course in engineering, medicine, management or for post-graduate course in applied sciences or pure sciences including mathematics and statistics;
  • 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 recognised by the Central or State Government will also be covered under deduction in respect of interest paid on loan taken for higher education.
  • Interest should have been paid for the loan taken for the purpose of pursuing his higher education or of the spouse and children. From A.Y. 2010-11 Relative also includes student for whom the individual is the legal guardian.
  • Deduction period: – 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. Initial assessment year means the assessment year relevant to the previous year, in which the assessee starts paying the interest on the loan.
  • 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.
  • Hence it is better that the education loan is repaid within eight years. Unless if the loan amount is very high and it is difficult to afford a high amount of equated monthly installment (EMI), one should not opt foreducation loan with longer tenure.
  • 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.
  • There is no condition that the course should be in India.

If intend to calculate your income tax for the year 2009-10 (A.year 2010-11) Check this GConnect Online Income tax software


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18 Responses to “Income Tax Exemption for Interest on higher education loan”

  1. Dr Ravindra Joshi said on Wednesday, December 9, 2009, 16:38

     Is their any proforma for claiming benefit under 80D. Whether bank should issue any statement/certificate to this effect.I have taken educational loan for my son’s higher education. My office insists I should get a certificate from bank for interest paid by me in order to claim benefit under 80D

    Reply

  2. padmanabhan said on Tuesday, December 15, 2009, 10:30

    sir, for every exemption from Income tax there need proper certificate so that claim can be given. so your office is correct in insistsing you should get a certificate from bank for interest paid by you in order to claim benefit thank you,yours sincerely V.padmanabhan TO vcrc Pondicherry

    Reply

  3. darshan singh said on Thursday, December 17, 2009, 19:48

    sir,my daughter-in-law(wifeof my son) took loan for higher education on my gurantee.Bank mortgauged my house for sanctioning loan. Can i get rebate in income tax if i pay intrest amount to the bank from my taxable income.

    Reply

    admin Reply:
    December 20th, 2009 at 7:38 pm

    @Darshan Singh
    As per relevant income tax provisions relative means his/her spouse and children.

    Reply

  4. K Rangaswamy said on Thursday, December 24, 2009, 13:06

    Exemption under 80E given for Graduate or postgraduate studies in Engineering, Medicine, Applied science or pure science and Managment studies. Can you clarify whether

    PG Course – Masters on Multi Media of Technology eligible to claim interest payment under this rule?!

    Reply

    admin Reply:
    December 27th, 2009 at 4:19 pm

    @K.Rangaswamy
    yes. All disciplines offered by authorized educational institutions would be covered by Section 80E. Refer to this original text of Section 80E

    http://law.incometaxindia.gov.in/TaxmannDit/DispCitation/ShowCit.aspx?fn=http://law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2009ITAct/section80E.htm

    Reply

  5. sks said on Monday, December 28, 2009, 8:45

    take a certificate from bank for claim u/s 80 E, like u claim in housing loan.

    Reply

  6. Ram Thilak V S said on Sunday, January 10, 2010, 11:17

    Sir,
    My son has availed (August 2008) education loan from Canara Bank for his studies in USA. The last installment of loan disbursement is due in Jan’ 10. Before stat of moratorium period (After August 2010), the interest accrued on the loan disbursed so far is added to loan to work out EMI. Since, the interest accrued has been added to loan, whether, can I claim exemption for this interest U/S 80 (E).

    Reply

  7. Rohit said on Monday, January 11, 2010, 12:56

    Dear Sir,

    I took an education loan from a London based financial institution. The loan is in Euros and I will now be working in India. Can I still claim for exemption on the interest component of my repayments? My HR told me that that exemption is valid only on INR loans.

    Would appreciate if you can help clarify.

    Regards,
    Rohit

    Reply

    admin Reply:
    January 12th, 2010 at 10:39 pm

    @Rohit
    Yes he is correct

    Reply

  8. Ram Thilak V S said on Saturday, January 16, 2010, 16:42

    Sir,
    My son has availed (August 2008) education loan from Canara Bank for his studies in USA. The last installment of loan disbursement is due in Jan’ 10. Before stat of moratorium period (After August 2010), the interest accrued onthe loan disbursed so far is added to loan to work out EMI. Since, the interest accrued has been added to loan, whether, can I claim exemption for this interest U/S 80 (E).

    Reply

  9. kunal said on Tuesday, January 26, 2010, 11:25

    Sir, if the education loan is taken by the son and the father is the guarantee can both of them take tax exemption for the interest paid under 80E ?

    Reply

    admin Reply:
    January 27th, 2010 at 12:04 pm

    @Kunal
    Normally Higher education loan will be disbursed in the name of the student only, and the parent/guardian would provide surety. Section 80E provides deduction of interest paid on higher education loan for higher studies of self, spouse or children. It does not mean interest paid for same loan could be availed by everybody.

    Reply

  10. Baby V D said on Monday, February 8, 2010, 19:45

    I am working as a teacher in higher secondary school. I purchased one car for my use two years ago. Is there any provision to deduct the depreciation amount from my taxable income

    Reply

  11. Baby V D said on Monday, February 8, 2010, 19:48

    I am working as higher secondary school teacher. I purchased a new car for my own use. Is there any provision to deduct the depreciation of the vehicle from the taxable income.

    Reply

  12. admin said on Monday, February 8, 2010, 21:54

    reply from Admin: @Baby V D

    As far as salaried class is concerned there is no provision for claiming depreciation benefits   

    http://gconnect.in/gc/service/personal-income-tax/it-calculation-2009-10-for-salaried-class-notified.html

     

    Reply

  13. Chintha Raja Srinivas said on Saturday, February 27, 2010, 18:55

    My son is studying M.S course (Master of Information and Management course. He is completed B.Tech C.Se in india) Out side India i.e. at Adelide University at Australia. I have been sanctioned education loan 10.00lakhs towards my son studies from SBH. But Iam taking 2.50 loan from S.B.H. on Last week of December 2009. Will I eligible to claim for Educational loan interest to Income Tax 2009-10.

    Reply

    admin Reply:
    March 10th, 2010 at 7:58 pm

    As per the prevailing provisions of IT, interest on education loan is deductible provided the loan is taken for higher studied in India

    http://gconnect.in/pages/circular_page/general-incometax-salariedclass-9-1-10.pdf

    Reply

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