Section 80e

Only an individual is allowed to claim this deduction. It is not available to HUF or any other taxpayer.

Companies cannot claim this deduction.

The loan is taken for the higher education of self, spouse, children, or any student for whom the individual is a legal guardian. Loans taken from recognised institutions only can claim a deduction under this section.

A deduction can be claimed only if the loan is taken for the purpose of higher education.

The deduction can be claimed for a tenure of 8 years starting from the date of repayment of the loan.

Parents can easily avail of such a deduction on loans taken for higher studies of their children.

What Should be the Purpose of the Loan?

The loan is taken for higher education. It is immaterial whether such an education loan is taken for higher studies in India or outside India.

Higher education involves all fields of study pursued after passing the senior secondary examination or its equivalent. It also includes vocational courses in addition to regular courses.

Are there any Limits for the Availing of such Loans?

Although the fees are high, most private banks offer the maximum loan limit for studying in India at Rs 10 Lacs without any collateral. For nationalized banks said the limit is restricted to Rs 7.5 lacs. However, for education abroad, it may be extended up to Rs 30 Lacs

There are however exceptions like SBI’s Special Scholar (up to Rs 20 Lacs), and Punjab National Bank’s Pratibha scheme (up to Rs 15 Lacs). These banks also have a sanctioned list of Ivy League institutes for higher sanction amounts.

Among private players, only NBFCs such as Credila, an HDFC company, and Avanse Financial Services, have no upper limits on loan amounts, however, they require collaterals with around 5% margins.

What is the Maximum Deduction Amount?

The deduction amount is the total amount of interest as a part of EMIs paid during the year. The Section does not specify an upper limit that is eligible for deduction.

However, an individual is required to obtain a certificate from the Bank, which segregates the principal amount and the interest portion of the education loan paid during the financial year.

Only the interest amount paid will qualify for deduction during the year.

What is the Period of Deduction?

The deduction of interest on a loan can be availed from the year in which repayment starts.

The maximum period of deduction under this section is 8 years, starting from the year in which repayment starts or until interest is fully repaid, whichever is earlier.

This means that if complete repayment of a loan is done in say, 5 years, the deduction shall be available for 5 years and not 8 years.

Is any Moratorium Period Available for such Loans?

Yes, a moratorium period is available for such loans, which is usually 1yr- from the completion of the course or 6 months after employment, whichever is earlier or any period stated in the loan agreement with the lender.

However, opting for a moratorium is not advised as interest for the period is added to the principal amount of the loan to determine the EMIs.

Which Organizations are Eligible for the Deduction?

Deduction under Section 80E is available only if an education loan is taken from any registered financial institution in India or any approved charitable institution. Any loan taken from any institution other than that stated above or any financial institution outside is not eligible for claiming any deduction under Section 80E of the Act.

What are the Required Documents to claim Deduction under Section 80E?

However, the documents mentioned below should be kept safe if required for any future scrutiny.

• The Sanction document of the loan
• The financial or charitable institution's repayments statements should have clear segregation of principal and interest amounts repaid.

Is it Beneficial to Prepay an Education Loan?

Many borrowers like to utilise the entire available period of 8 years to repay an education loan. Some of them do so by investing their surplus funds, which means they work the repayment to stretch the entire repayment period where they claim tax benefits. This approach is suitable for those who feel they can earn more by investing in the surplus instead of repaying the loan.

Repaying early also sets up a good repayment record, which could make borrowing later more convenient in life, especially in things such as buying a house at a later stage.

Tax Benefits under Section 80E

An individual who has availed of a higher education loan can enjoy various tax benefits. It can be claimed as an additional deduction above the overall limit of Rs 1.5 lacs under Section 80C. Also, section 80E has no ceiling attached to the deductions and can be claimed on any actual interest repayment under the section.

Lenders should look at more customer-friendly options like balloon repayments where EMIs are lower and they gradually increase as you climb up the corporate ladder.

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