Q.1 Who can claim deduction?
Only Individual can claim deduction under section 80E.
Q.2 What is Expenditure Qualified for deduction under section 80E?
Interest paid on Loan.
Loan should be taken:
1. for Study after Senior Secondary or its equivalent
2. from a Bank, Financial Institution or an Approved Charitable Institution
Interest must be actually paid for claiming deduction.
Illustration:
Rohit has taken a loan for MBA from a Bank. He has not paid any interest upto 4 Years. The accrued interest after 4 years is Rs. 40,000. He pays entire interest accrued today. What is the amount of deduction?
Answer:
Rs. 40,000 because deduction under section 80E is allowed on the basis of actual payment.
Q.3 For whom education loan taken is deductible?
Deduction is allowed if loan is taken for:
- Individual (himself/ herself)
- Relative (Spouse, children or any other student for whom individual is legal guardian)
Q.4 What is the Period of Deduction?
Deduction is allowed in the year when individual starts paying the interest and in subsequent 7 years or until interest is paid in full. However, Interest should be paid out of Income Chargeable to Tax.
Q.5 Does it matter the Education/ Course pursued is Full Time or Part Time?
No, it does not matter now.
Earlier, deduction was allowed only for the full-time courses.
But, the budget of 2009 changed all this and now you can claim tax benefits in respect of part-time courses too. What is required is that the course should be pursued from any government-recognised school, board or university, though not necessarily under the central government. It may be recognised even by a local authority. Even a part-time course or a diploma course will qualify for the purpose of claiming this interest deduction, provided the institution imparting such course is recognised
Illustration: Mr. Jain has taken a loan for Part Time MBA of Rs.100,000 and Rs.2,50,000 for his son for Full Time MCA. Interest paid on loan is 10%. What is amount of deduction?
Answer: Deduction will be available to Mr. Jain under section 80E. Amount Rs. 35,000.
Note: Deduction is also available for education pursued outside India.
Q.6 Is there any maximum ceiling on the amount of deduction?
Earlier the maximum ceiling was Rs. 40,000.
But, currently there is no limit on maximum amount of deduction uder section 80E.
FAQ1. Suppose Ram has taken Loan of Rs. 1,00,000 for his higher studies but his father has paid the interest. Is there any deduction available under section 80E for the interest paid?
No, Interest must be paid by the person, who has taken the loan only.
FAQ2. Other Relevant points:
1. You need to obtain a Certificate from your Bank to claim deduction under section 80E by specifically segregating the principal amount and interest paid by you during the financial year.
2. You have to pay the entire amount within 8 Years from the year you starts paying the interest, otherwise after 8 years, no deduction will be allowed.
Rohit Jain
frohit@live.in
CAclubindia
