Section 80E: Education Loan Deduction AY 2018-19 [Incl.Example]

| 1 year ago

Deduction of Education Loan under Section 80E

Eligibility for 80E Deduction

In AY 2018-19, an Individual can get the deduction of interest paid on education loan under section 80E. Such loan should be taken for higher education of –

  1. Self
  2. Husband/wife
  3. Children
  4. Any student for whom such Individual is the legal guardian

Name specified in point 2, 3 and 4 are referred as “relative”.

Amount and Period of Deduction

Unlike 80C, there is no maximum deduction limit under this section. Only the interest portion of EMI will be available as the deduction.

However, as per the provision, the tax benefit will be available for maximum 8 financial years only (Continuous). Any interest paid beyond 8 years from the year of 1st interest payment shall not be eligible for deduction.

Usually, education loan has moratorium period i.e period during which instalments are not to be paid. Such period should be excluded for calculating 8 years limit.

However, if a borrower chooses to pay instalments during these periods, limit of 8 years will start from the year of 1st payment.

Purpose of Loan

The loan should be taken for pursuing higher education i.e education after Senior Secondary Examination (12th Board Exams). Loan taken for a foreign study is also eligible.

All courses after class XII whether it be a regular or vocational are covered.

Eligible Lenders

The loan should be taken from any bank or financial institution or charitable trust which are approved by Dept. under section 10(23C) or 80G(2)(a).

Although documents are not required while claiming 80E deduction, a borrower should always get a certificate from above lenders which segregate interest portion from total instalment amount.

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Example:

Mr Mishra took education loan of Rs.4,00,000/- for his son on 01st April 2014. The loan has a moratorium period of 3 years. As instalments were not paid during the moratorium period, the bank added Rs.1,08,000/- as interest during 2015-2017.

During FY 2017-18, Mr Mishra paid Rs.2,00,000 as instalments. Out of this Rs.1,20,000 was towards principle payment and remaining Rs.80,000/- was towards interest payment.

For FY 2017-18 (a.k.a AY 2018-19), tax saving under section 80E will be Rs.80,000/- only.

Conclusion

You can claim a deduction of interest payment on an educational loan for a maximum of 8 continuous years without any limit.

In other words, if you pay EMI before 8 years, say 3 years, the deduction will be available for those 3 years only.

Principle portion of your EMI is not allowed for deduction.

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