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

U.C Date : 25 Feb 2015

Eligible Assessee – Individual (whether resident or not)

Eligible Amount – The amount of interest paid on education loan is allowed as deduction. The amount of principal repaid is not allowed as deduction. There is not any maximum limit for the amount of deduction.
And it is also necessary that the loan should be taken from any financial institution or approved charitable institution.

Interest is allowed as deduction only  when such interest is paid out of income chargeable to tax.

100% of such Interest is deductible if the following conditions are satisfied:

  • If the loan is taken for higher education of (i) assesse himself or (ii) his relative (spouse, child or student of which assessee is a legal guardian)
  • If the loan is taken from any financial institution (banking company or notified financial institution) or an approved charitable institution (i.e an institution approved for the purpose of section 10(23C) or 80G(2)(a))

Deduction is allowed for the

  • Year in which assesse starts paying the interest
  • and in succeeding 7 years

Meaning of Higher Education:

Higher education covers all fields of studies (including vocational studies) pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognized by the Central Government or State Government or local authority or by any other authority authorized by the Central Government or State Government or local authority to do so.

Other points –

  • Deduction is allowed to the person in whose name loan is taken. If your parents, spouse has taken loan for your studies then deduction is allowed to parents or spouse and not to you.
  • The loan may be used for the tuition or college fees or may also be used for incidental expenses like hostel fees etc.
  • There is no condition that the higher education is pursued in India.

Bare Act for Sec 80E

Bare Act for Sec 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.]

3 comments

  1. Dear Sir, I took personal of Rs.4 Lakhs(36EMIs) from M/s.Bajaj finance in april, 2015 for the purchase of house site. Now, I am paying monthly EMI of Rs.14,113/-. Is the interest exempted from Income tax Sec.24, or 24(b) ?
    Please acknowledge the same.

    Thanks,
    Mahendra

  2. Dear Sir, I took personal of Rs.4 Lakhs(36EMIs) from M/s.Bajaj finance in april, 2015 for the purchase of house site. Now, I am paying monthly EMI of Rs.14,113/-. Is the interest exempted from Income tax Sec.24, or 24(b) ?
    Please acknowledge the same.

    Thanks,
    Mahendra

    • Prateek Agarwal

      Deduction is allowed only for interest paid on housing loan.
      Therefore no deduction is allowed in your case.

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