In India, pursuing higher education often entails significant financial investments. To ease this burden, the Income Tax Act provides a beneficial provision under Section 80E, allowing individuals to claim a deduction for interest paid on loans taken for higher education.
However, it's important to note that this deduction is applicable only under the Old Tax Regime and not under the New Tax Regime (Section 115 BAC).
1. Eligibility Criteria: The deduction is available to individual taxpayers who have taken a loan from a financial institution or an approved charitable institution to fund their own higher education or that of the spouse, children of the individual, or of the student for whom such individual is a legal guardian.
2. Purpose of Loan: The loan should be specifically taken for the purpose of pursuing higher education. This includes courses pursued after passing the Senior Secondary Examination from a recognized institution.
3. Nature of Institution: The loan must be availed from a financial institution like a bank or a specified financial entity, or an approved charitable institution recognized under Section 10(23C) or Section 80G of the Income Tax Act.
4. Deduction Period: The deduction can be claimed for the interest paid on the loan during the initial assessment year ( the assessment year in which the individual start paying the interest) and the subsequent seven assessment years or until the interest is fully repaid, whichever is earlier.
Let's consider an example to understand how Section 80E works:
Scenario:
Prashant, an individual taxpayer, has taken an education loan of ₹10,00,000 from a nationalized bank to finance his MBA studies from a reputed university in India. The annual interest rate on the loan is 8%, and he starts repaying the interest from the financial year 2023–24.
Calculation:
Also Read Tax-Saving Health Options: Secure Your Family's Well-being
Section 80E of the Income Tax Act serves as a valuable tax-saving opportunity for individuals bearing the financial responsibility of higher education expenses. By availing this deduction, taxpayers can reduce their taxable income, thereby easing the financial strain associated with education loans.
It's crucial to consult with a tax advisor or financial expert to ensure proper compliance with the provisions of Section 80E and maximize the benefits available under the Income Tax Act. Additionally, taxpayers should be mindful of the tax regime they opt for (Old or New) to make informed decisions regarding their tax liabilities and deductions.
Section 80E incentivizes investment in higher education by providing a favorable tax treatment for interest payments on education loans, ultimately promoting access to quality education and skill development among Indian taxpayers.
Click here to book your FREE tax assessment call
[Disclaimer- The article is only for educational purposes and is not to be construed as tax advice. The relevant provisions of the Income-tax Act may be referred to, for complete understanding.]
.svg)
