DEDUCTION OF INTEREST ON EDUCATION LOAN IN INCOME TAX ACT

[KASTURI SETHI]

Dear Experts,

One query please.

Is deduction on account of interest on education loan admissible under Income Tax Act ? If so, under which Section of Income Tax Act ? Pl. reply.

Thanks a lot in advance.

[GUNASEKARAN K]

If you have taken an education loan and are repaying the same, then the interest paid on that education loan is allowed as a deduction from the total income under Section 80E. However, the deduction is provided only for the interest part of the EMI. There is no tax benefit for the principal part of the EMI.

Few condition for claiming deduction under 80E;

(a) "approved charitable institution" means an institution specified in, or, as the case may be, an institution established for charitable purposes and notified by the Central Government 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 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;

(d) "initial assessment year" means the assessment year relevant to the previous year, in which the assessee starts repaying the loan or interest thereon.'.

[KASTURI SETHI]

Sh. Gunasekaran K Ji,

Sir, Thank you very much for your prompt response.

[KASTURI SETHI]

Dear Sir,

Is there any limitation ?

[Padmanathan KV]

Kasturi Sir,

It is pertinent to note that definition of higher education has been amended wef 1-4-2010 as follows:

(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;

Also note that the Educational loan may be taken for higher education of assessee himself or his 'relative' as defined to mean the spouse and children of that individual or the student for whom the individual is the legal guardian.

Regarding the time limit,

Sub-section (2) of Section 80E provides that the deduction shall be allowed in computing the total income in respect of the initial assess­ment year and 7 assessment years immediately succeeding the initial assessment year or until the interest is paid by the assessee in full, whichever is earli­er.

[GUNASEKARAN K]

Dear Mr.Kasturi Sethi,

There is no limit on the maximum amount of deduction.

Need to obtain a repayment certificate with the break up of Principal and Interest portion.

[KASTURI SETHI]

Sh.Gunasekaran K Ji and Sh.Padmanathan Kollengode Ji,

I am highly thankful to both of you. My problem is solved well in time.

AI Summary

Interest Deduction on Education Loans Explained: Section 80E Covers Only Interest, Not Principal; No Deduction Limit. An individual inquired about the deduction of interest on education loans under the Income Tax Act. An expert clarified that such deductions are allowed under Section 80E, applicable only to the interest portion of the EMI, not the principal. The conditions for claiming this deduction include the loan being from an approved charitable or financial institution and for higher education. The deduction is available for the initial assessment year and the next seven years or until the interest is fully paid. Another expert added that education loans can be for the taxpayer or their relatives. There is no limit on the deduction amount.