Q. Who is eligible for deduction u/s 80E?
A. Loan should be taken by individual for pursuing higher education of self, spouse or his /her Children’s. Hence parents are also eligible to claim deduction of interest paid by them on loan taken for their children’s education. This deduction is not available to HUF.
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Q. What is eligible amount?
A. Only interest paid on an educational loan is allowed as deduction u/s. 80E of The Income Tax Act, 1961, out of his/her income chargeable to tax i.e. Deduction will be allowed only when actual interest is paid.
Q. How much amount is deductible?
A. There is no limit for amount of repayment of interest. Unlimited amount of interest can be deducted under this section. However there is no benefit available on the repayment of principal amount of the loan. The assesse can claim the amount of interest in the initial assessment year & carry forward up to 7 assessment years.
Deduction is allowed for a continuous period of eight years, starting with initial assessment year in which the assessee starts paying the interest on the loan or until the interest is paid in full whichever is earlier.
Q. Can loan be taken for any education?
A. The loan should be taken for the purpose of higher education.
Q. Can higher studies be pursued outside India?
A. There is no condition that the course should be in India.
Q. Can loan be taken from relatives?
A. The loan should be taken from any financial institution or any approved charitable institution. Interest on Loan taken from relatives or friends will not be eligible for deduction under section 80E.
Below given the actually says by the Income Tax Department about the U/S 80E
25. For section 80E of the Income-tax Act, the following section shall be substituted with effect from the 1st day of April, 2006, namely:—
‘80E. 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.’.