Friends,
Most of us are not aware about the deduction u/s 80E. Now a days the study is so much costly that everyone can not afford and have to take loan for studies. Friends, there is a provision in the Income Tax Act regarding Loan taken for Higher studies. In This post we will discuss issue relating to deduction u/s 80E for eduction loan for higher studies.We will try to cover all point relating to eduction loan ,but if any left or you have a different opinion than us ,you can record it in comment section given below.
Relevant clause of section are reproduced hereunder for ready reference :
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.
from above main points to avail the deduction are
Eduction loan should be taken by Assessee.
The amount eligible for deduction is repayment of eduction loan interest.
There is no limit for amount of repayment of interest.Unlimited amount of interest can be deducted under this section.
This deduction is available in respect of the initial assessment year and seven assessment years immediately succeeding the initial assessment year or until the interest is paid by the assessee in full, whichever is earlier.
Initial Assessment year means previous year in which assessee starts paying the interest amount.
The loan should be taken for the purpose of higher eduction,and higher eduction 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;
The loan should be taken from any financial institution or any approved charitable institution.(in simple main Banks are covered)
The loan should be taken for higher study of himself or studies of relative
Relative under this section means the in relation to an individual, means the spouse and children of that individual the student for whom the individual is the legal guardian.
Earlier to previous year 2006-07 the above deduction is available for loan taken and repaid by the assessee himself for his studies only but after finance act 2007 ,"the deduction is available for the purpose of higher education of his relative also.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.
There is no deduction available for repayment of principal ,this deduction is available to only for interest repayment.
This deduction is available for individual only and not for other type of assessee .
The loan should be for pursuing higher studies means loans taken not only for tuition or college fees but also loan taken other incidental expenses for pursuing such studies like hostel charges,transport charges etc etc is also covered under this deduction,
There is no condition that the course should be in India .
80 E (deduction on Interest on study loan) was available to parents and person himself but now after finance act 2009(2) it is available to Legal guardian also.
Updated section is given below for ready reference
[Deduction in respect of interest on loan taken for higher education.
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 88[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 Gazette89, 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 pre-vious 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.]
Qus: Ram has taken a Eduction loan for his higher studies on 20.06.2005 and started paying installments including interest from 20.06.2007.
Ans:In above example Ram will get tax benefit under section 8o E from p.y 2007-08 i.e initial year of payment and next seven year i.e upto previous year 2014-15 or upto full payment of loan which ever is earlier.
Ques:Ram has taken a loan for his higher studies on 20.06.2005 and paid 20000 interest in previous year and his father has paid 15000 interest payment in previous year 2007-08.who can claim benefit of deduction.
Ans:Only ram will be eligible for deduction of 20000 rs .His father is not eligible for deduction the reason behind this is that loan has been taken by the Ram and not by his father as mentioned in point one above ,though his father is satisfy the condition of relative and paid the interest also but he has not taken the loan
Ques:Can son /daughter can claim the benefit of deduction for loan taken for higher studies of his /her father/mother.
Ans: No,on the reverse ,parents can claim the benefit for payment of interest for higher studies of their children.
Ques:Ram has taken a loan for his higher studies ,and has repaid the laon interest amount but unfortunately he has not succeeded in exams and could not complete his higher studies.
Ans:As per section loan should be for "pursuing his higher education or for the purpose of higher education of his relative"and ram has pursued the higher course so he should be eligible for the deduction as he has fulfilled all the conditions and there is no condition that the course assessee has persuaded should b completed or assessee should be passed definitely in the course the main dedmand of the section is purpose of the loan should be higher eduction and it should be drawn and used for the purpose of higher studies for his or his relatives.
Qus:An educational loan taken four years back. The next year a sum of Rs.4000/= was paid to the bank by way of interest. Following years nothing was paid.
Now in the current year borrower is employed and paid a sum of Rs.40000/= paid to the bank towards interest. The interest calculated for the current year is Rs.13,000/= only. The rest is interest accrued for the previous years. On what amount can he/she claim the exemption:-
a. on the whole amount of Rs.40000/- or
b. on the interest payable for the current year only i.e. Rs.13,000/=
Ans:80 E deduction is available on payment basis ,in present case 40000 is allowed as per section 80E
Most of us are not aware about the deduction u/s 80E. Now a days the study is so much costly that everyone can not afford and have to take loan for studies. Friends, there is a provision in the Income Tax Act regarding Loan taken for Higher studies. In This post we will discuss issue relating to deduction u/s 80E for eduction loan for higher studies.We will try to cover all point relating to eduction loan ,but if any left or you have a different opinion than us ,you can record it in comment section given below.
Relevant clause of section are reproduced hereunder for ready reference :
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.
from above main points to avail the deduction are
Eduction loan should be taken by Assessee.
The amount eligible for deduction is repayment of eduction loan interest.
There is no limit for amount of repayment of interest.Unlimited amount of interest can be deducted under this section.
This deduction is available in respect of the initial assessment year and seven assessment years immediately succeeding the initial assessment year or until the interest is paid by the assessee in full, whichever is earlier.
Initial Assessment year means previous year in which assessee starts paying the interest amount.
The loan should be taken for the purpose of higher eduction,and higher eduction 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;
The loan should be taken from any financial institution or any approved charitable institution.(in simple main Banks are covered)
The loan should be taken for higher study of himself or studies of relative
Relative under this section means the in relation to an individual, means the spouse and children of that individual the student for whom the individual is the legal guardian.
Earlier to previous year 2006-07 the above deduction is available for loan taken and repaid by the assessee himself for his studies only but after finance act 2007 ,"the deduction is available for the purpose of higher education of his relative also.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.
There is no deduction available for repayment of principal ,this deduction is available to only for interest repayment.
This deduction is available for individual only and not for other type of assessee .
The loan should be for pursuing higher studies means loans taken not only for tuition or college fees but also loan taken other incidental expenses for pursuing such studies like hostel charges,transport charges etc etc is also covered under this deduction,
There is no condition that the course should be in India .
80 E (deduction on Interest on study loan) was available to parents and person himself but now after finance act 2009(2) it is available to Legal guardian also.
Updated section is given below for ready reference
[Deduction in respect of interest on loan taken for higher education.
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 88[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 Gazette89, 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 pre-vious 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.]
Qus: Ram has taken a Eduction loan for his higher studies on 20.06.2005 and started paying installments including interest from 20.06.2007.
Ans:In above example Ram will get tax benefit under section 8o E from p.y 2007-08 i.e initial year of payment and next seven year i.e upto previous year 2014-15 or upto full payment of loan which ever is earlier.
Ques:Ram has taken a loan for his higher studies on 20.06.2005 and paid 20000 interest in previous year and his father has paid 15000 interest payment in previous year 2007-08.who can claim benefit of deduction.
Ans:Only ram will be eligible for deduction of 20000 rs .His father is not eligible for deduction the reason behind this is that loan has been taken by the Ram and not by his father as mentioned in point one above ,though his father is satisfy the condition of relative and paid the interest also but he has not taken the loan
Ques:Can son /daughter can claim the benefit of deduction for loan taken for higher studies of his /her father/mother.
Ans: No,on the reverse ,parents can claim the benefit for payment of interest for higher studies of their children.
Ques:Ram has taken a loan for his higher studies ,and has repaid the laon interest amount but unfortunately he has not succeeded in exams and could not complete his higher studies.
Ans:As per section loan should be for "pursuing his higher education or for the purpose of higher education of his relative"and ram has pursued the higher course so he should be eligible for the deduction as he has fulfilled all the conditions and there is no condition that the course assessee has persuaded should b completed or assessee should be passed definitely in the course the main dedmand of the section is purpose of the loan should be higher eduction and it should be drawn and used for the purpose of higher studies for his or his relatives.
Qus:An educational loan taken four years back. The next year a sum of Rs.4000/= was paid to the bank by way of interest. Following years nothing was paid.
Now in the current year borrower is employed and paid a sum of Rs.40000/= paid to the bank towards interest. The interest calculated for the current year is Rs.13,000/= only. The rest is interest accrued for the previous years. On what amount can he/she claim the exemption:-
a. on the whole amount of Rs.40000/- or
b. on the interest payable for the current year only i.e. Rs.13,000/=
Ans:80 E deduction is available on payment basis ,in present case 40000 is allowed as per section 80E
