Deduction in Respect of Repayment of Loan Taken for Higher Education under Section 80E

Deduction in Respect of Repayment of Interest on Loan Taken for Higher Education under Section 80E of the Income Tax Act, 1961

Conditions for claiming deduction under section 80E:-

  • The assessee should be an Individual.
  • He had taken a loan from banking company or any notified financial institution.
  • The loan was taken for the purpose of higher education (like Engineering, ,medical, graduation and other all type of studies after passing the senior secondary examination or equivalent)
  • Loan taken for the purpose of pursuing his own or relatives higher education the expression relative has been extended to cover the students for whom the taxpayer is the legal guardian.
  • Amount is paid by the individual during the previous year by the way of interest on such loan
  • Such amount is paid out of his income chargeable to tax     

Amount of deduction under Section 80E:

If the above conditions are satisfied the entire amount paid by the way of interest is deductable under section80E. However, the following point should be noted –

  1. the above deduction is allowed in computing the taxable income of the initial assessment year(i.e. the A.Y. relevant to the previous year in which the assessee starts paying the interest on the loan) and 7 immediately succeeding assessment years(or until the above interest is paid in full, whichever is earlier).
  2. From the assessment year 2006-07, no deduction will be available under sec. 80E in respect of repayment of principal amount.

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

(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.

(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 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 mathe-matics and statistics;

(d)   “initial assessment year” means the assessment year relevant to the previous year, in which the assessee starts paying the interest on the loan.’.

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