With the expansion of the Indian economy and rising income levels, education expenditure has risen as well, accounting for the second-largest part of middle-class households' expenditures in the country. We often end up paying a significant level of savings to cover the growing cost of higher education.
What is Section 80E ?
This provision was enacted to give some assistance to taxpayers who have high education expenditures and need to borrow money to cover them. Interest paid on a loan received for higher education can be deducted from taxable income under section 80E of the Income Tax Act.
The education loan must be obtained through a financial or charitable institution only. The interest paid to a family member on a loan acquired for higher study is not eligible for deduction.
Who is eligible to claim deduction?
This deduction is available only to individuals. It does not apply to HUFs or other types of taxpayers. The loan should be used to fund the higher education of the borrower, his or her spouse or children, or a student for whom the borrower is the legal guardian. This deduction is readily claimed by parents for loans incurred for their children's higher education.
Tenure for the deduction
The interest on a loan is deductible beginning in the year you begin repaying the loan. It is only accessible for eight years, beginning the year you begin repaying the loan or until the interest is entirely returned, whichever comes first. This implies that if the loan is repaid in full in five years, the tax benefit will only be available for five years, not eight.
It's also worth noting that if your loan term exceeds eight years, you won't be able to deduct the interest you paid after that. As a result, it is generally desirable to repay an education debt within eight years.
What is the maximum permissible deduction?
The entire interest portion of the EMI paid throughout the financial year is the amount that can be deducted. The amount that can be deducted as a deduction has no upper limit. However, the borrower must receive a certificate from his/her bank. The main and interest portions of the education loan you paid throughout the financial year should be separated on such a certificate. The total interest paid will be deductible, however, there will be no tax advantage for the repayment of the principal amount.
When education is becoming more expensive and many people still dream of continuing their education after high school, tax deduction sections like 80E have been tacitly supporting several of these goals.