If you’re a student or have financed your education recently, Section 80E of the Income Tax Act, India, could be a valuable benefit for you. This section offers tax relief on the interest paid on education loans. Let’s break it down to understand how it works:
What is Section 80E?
This section provides a tax deduction for the interest paid on loans taken for higher education. This benefit is available to individuals who have taken loans for themselves and their families. However, it’s important to note that this deduction is only applicable to the interest component of the EMI, not the principal repayment.
Key Features of this Section:
- Eligibility: Only the interest on the loan qualifies for the deduction. The principal repayment does not qualify.
- Loan Purpose: The loan must be for higher education. This includes undergraduate, postgraduate, or other advanced courses.
- Loan Providers: The loan must be taken from a specified financial institution or an approved charitable institution.
- Duration: You can claim the deduction under Section 80E for a maximum of 8 years or until the interest is fully paid off, whichever is earlier. The benefit starts from the year in which you start repaying the loan.
Example:
Amit has taken an education loan of ₹5,00,000 to pursue a Master’s degree. The loan was sanctioned by a recognized bank. The interest he pays annually is ₹50,000. Thus, for the financial year 2023-24, Amit can claim a deduction of ₹50,000 under Section 80E.
Here’s how it works:
- Amit’s gross income is ₹10,00,000.
- He pays ₹50,000 as interest on his education loan.
- Under this Section, he can deduct ₹50,000 from his taxable income.
- Thus, his taxable income reduces from ₹10,00,000 to ₹9,50,000.
- Consequently, his tax liability decreases based on the reduced income.
Conclusion:
Section 80E offers a valuable tax break for individuals repaying education loans. By reducing your taxable income, it helps make higher education more affordable. Remember, while you can’t claim deductions on the principal amount, the relief on the interest payments can significantly impact your tax savings. So, if you’re repaying an education loan, make sure to leverage this benefit in your tax planning!
– Ketaki Dandekar (Team Arthology)
Read more about Deduction on Education Loan here – https://cleartax.in/s/80e