Section 80E: Deduction in respect of Payment of Interest on Loan taken for Higher Education – when and to what extent available

Section 80E: Deduction in respect of Payment of Interest on Loan taken for Higher Education – when and to what extent available is depends upon the following conditions with all salient features :

Essential conditions for claiming deduction under this section:

(1)        The deduction is available only to individual assessee.

(2)        The individual must have taken a loan from:

(a) any fmancial institution, or

(b) any approved charitable institution.

(3)        The loan must have been taken for pursuing higher education. Such education must be of assessee himself or any of his relatives.

(4)        The deduction shall be allowed only in respect of any sum paid by him, in the previous year by way of interest on such loan.

(5)        Such amount should be paid out of his income chargeable to tax.

Quantum of Deduction under Section 80E:

The amount paid during previous year towards interest.

Period of Deduction:

Deduction shall be allowed for 8 assessment years starting from the assessment year in which the assessee starts paying the interest on loan, or until the interest thereon is paid by the assessee in full, whichever is earlier.

Meaning of Higher Education:

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.

Meaning of Relative:

Relative in relation to an individual, means the spouse and children of that individual or the student for whom the individual is a legal guardian.

EXAMPLE:

Gross Total Income of A for previous year 2021-22 is Rs.5,20,000. He had taken a loan of Rs.6,00,000 in 2020-21 from a Bank for pursuing the MBA course by his son from IIM Bangalore. During the previous year 2021-22, he repaid the 1st instalment of loan of Rs.55,000 and interest of Rs.70,000.

Compute his Total Income for assessment year 2022-23 if A:

(a)        Does not opt to be taxed under section 115BAC

(b)        Opts to be taxed under section 115BAC