In today’s times, getting a higher education has become a point of concern where the fees for such education are touching the sky. As they say, the only thing costlier than education is ignorance.
Therefore, people have nowadays, started planning for higher education for their children. However, unfortunately, it is not possible for every person to plan for their or their children’s higher education. As education impacts the growth of a society impeccably, the government of India encourages and provides support for the cost of higher education in India. A person can easily avail of education loans to meet the cost of higher education. The government of India extends its support by providing a deduction for the cost of the loan while calculating the taxable income of a person. According to the Income Tax Act, a 100% deduction for interest on loan taken for higher education is allowed while calculating the income chargeable to tax in India.
Any individual who has availed an education loan for the higher education for self, spouse or children, is eligible to claim a deduction of the amount paid as interest, under section 80E of Income Tax Act while calculating the total income chargeable to tax. An individual can also claim such a deduction of interest if such a loan is taken for any student of whom such an individual is a legal guardian. Thus, this deduction is allowed only to a person being an individual. Accordingly, an HUF, Company, AOP, or any other person other than an individual cannot claim deduction under this section.
Nature of Loan
An individual should have taken an education loan from any financial institution or any approved charitable institution. Thus, interest paid on any loan taken from relatives or friends for higher education shall not be allowed to be claimed as a deduction.
Nature of Deduction
An individual can claim deduction only for the interest amount paid by him for any education loan. Thus no deduction can be claimed for the principal repayment of such an education loan. For this, an interest certificate has to be obtained by an individual from the bank segregating the amount of principal amount and interest amount paid by an individual during the previous year.
Amount of Deduction
There is no limit on the amount that can be claimed as deduction under section 80E. Thus an individual can claim a 100% deduction for any amount paid by way of interest on education loan that was taken to meet the cost of higher education.
Period of Deduction
An individual can claim such deduction of interest on education loans from the year for which such interest is paid. Such deduction shall be allowed to be claimed up to 8 assessment years starting from the year in which the loan becomes due for repayment; or years, in which the entire amount of interest has been paid, whichever is earlier.
Points to remember
- Only individuals can claim deduction under section 80E.
- To be eligible to claim a deduction, only education loans should be taken for higher studies.
- Higher studies mean any full-time studies for graduate or post-graduate courses in engineering, medicine or management or postgraduate course in applied sciences, pure sciences mathematics & statistics. Thus it can be any course pursued post Senior Secondary Examination, including any Vocational Course.
- To claim a deduction, an interest certificate has to be obtained from the bank.
- The amount of deduction can be claimed only up to 8 assessment years. Thus the period of loan for education for higher studies should be 8 years or less.
Jitesh Telisara & Associates LLP, CA In Kalyani Nagar is a professionally managed firm catering to domestic and international clients with a broad range of services in domestic and international taxation, regulatory and advisory services and crosses border transaction-related services.
The team at the firm has dedicated and experienced professionals and associates like Chartered Accountants, Company Secretary and Consultants to provide end to end services to your business. With the effort of gaining a deep understanding of your business, the team is committed to providing valuable, consistent and efficient services based on its in-depth knowledge and wide experience in the areas of audit, taxation, regulatory compliances, and related business services.
Our services: GST Consultant, IT returns consultant, Corporate law, Taxation, Regulatory & Advisory Services