If you take a loan for higher studies (of yourself or of your Children, Spouse or for the student of whom you are legal guardian), you can get some tax benefits. Such benefits will help you to reduce the overall cost of your education loan. Read the complete article to know how to avail tax benefit on Education Loan.
Section 80E – Deduction on Interest on Education Loan
Under Section 80E, Deduction is available from the AY (Assessment Year) 1995-96 in respect of interest on loan taken for higher education. Several forms of higher studies are covered under this section 80E for claiming deduction. It is available if the following conditions are satisfied.
- The taxpayer is an individual.
- He/She had taken a loan from any financial institution (i.e., a notified financial institution or banking company) or an approved charitable institution (i.e., an institution approved for purpose of section 80G(a) or 10(23C)).
- The loan was taken for the purpose of pursuing higher education (i.e., all fields of studies pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognised by the Central Government or State Government or local authority or by any other authority authorized by the Central Government or State Government or local authority to do so).
- The loan is taken by the taxpayer for the purpose of pursuing his own higher education. W.e.f the assessment year 2010-11, the scope of expression “relative” has been extended to cover the student for whom the taxpayer is legal guardian.
- Amount is paid by the individual during the previous year by way of interest on such loan.
- Such amount is paid out of his income chargeable to tax.
Amount of Deduction under Section 80E
- From the AY 2006-07, entire payment of interest is deductible. The deduction is available for a maximum of 8 years or till the interest is paid, whichever is earlier. This deduction is allowed in computing the taxable income of the intial AY and 7 immedicately succeeding asseessment years.
- Up to the AY 2005-06, the amount deductible is
- amount paid during the year by way of repayment of loan and / or interest thereon; or
- Rs. 40,000 (Rs. 25,000 up to AY 2000-01); whichever is lower.
Section 80EE – Deduction on Interest on Home Loan
Under Section 80EE, Deduction is availble in respect of interest on loan taken for residential house property. This is applicable only for the assessment years 2014-15 and 2015-16. It is available if the following conditions are satisfied.
- The taxpayer is an individual.
- He/She may be resident or non-resident.
- He has taken a loan.
- Loan is taken for acquisition (purchase) of residential house property.
- Loan is taken from a housing finance company or a bank.
- Loan has been sanctioned by the bank/housing finance company during 1st April 2013 and 31st March 2014.
- The amount of loan sanctioned for residential property should not be more than Rs. 40 Lakh.
- The taxpayer does not own any residential house property on the date of sanction of loan.
Amount of Deduction under Section 80EE
The assessee can claim deduction under Section 80EE, if the above conditions are satisfied. Deduction is available in respect of interest payable on the above mentioned loan or Rs. 1,00,000, whichever is less. This deduction is available for the assessment year 2014-15. However, if the interest payable for the previous year 2013-14 (i.e., Financial Year 2013-14 or Assessment Year 2014-15) is less than Rs. 1,00,000, the balance shall be allowed as deduction under section 80EE for the Assessment Year 2015-16.
Example: Assessee has taken a loan for the purchase of residential property & interest payable on loan Rs. 90,000/- for the AY 2014-15. In this case assessee can claim deduction of Rs. 90,000/- in Assessment Year 2014-15 and you can claim the remaining balance i.e. Rs. 10,000 Assessment Year 2015-16.
Note: If the deduction under section 80EE is claimed, then no other deduction will be allowed in respect of such income under any other provision of the Income Tax Act for any other or same assessment year (AY).
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