Deduction under Section 80E: Interest on Loan for Higher Education
Deduction under Section 80E: Interest on Loan for Higher Education
This deduction is allowed only to an Individual for the amount of interest paid on education loan, i.e. any course pursued after passing Class 12th or equivalent. The deduction cannot be claimed for repayment of principal amount of loan.
The loan can be taken for education of either self or spouse or children (including any person of whom such individual is a legal guardian).
The loan should be taken only from financial institutions or any approved charitable institution as notified by Central Government.
Deduction shall be allowed for the entire amount of interest. This means there is no bar as to maximum amount of deduction that can be claimed. Although it is allowed only for 8 assessment years starting from the year in which first payment of interest is done.
For instance, X takes a loan from an approved charitable institution amounting to Rs. 40,000 repayable in 10 annual equal instalments at an interest rate of 10% p.a. in Financial Year 2015-16 so that his wife can pursue a Master’s degree in Commerce.
He pays back Rs. 8,000 in Financial Year 2016-17 (Rs. 4,000 towards principal amount and Rs. 4,000 towards interest).
Under Section 80E, he can claim deduction of Rs. 4,000 (interest part of Rs. 8,000) in Financial Year 2016-17 (Assessment Year 2017-18).
Similarly:
| Year | Financial Year | Outstanding Loan | Interest | Payment | 80E Deduction |
| 1 | 2016-17 | 40,000 | 4,000 | 8,000 | 4,000 |
| 2 | 2017-18 | 36,000 | 3,600 | 7,600 | 3,600 |
| 3 | 2018-19 | 32,000 | 3,200 | 7,200 | 3,200 |
| 4 | 2019-20 | 28,000 | 2,800 | 6,800 | 2,800 |
| 5 | 2020-21 | 24,000 | 2,400 | 6,400 | 2,400 |
| 6 | 2021-22 | 20,000 | 2,000 | 6,000 | 2,000 |
| 7 | 2022-23 | 16,000 | 1,600 | 5,600 | 1,600 |
| 8 | 2023-24 | 12,000 | 1,200 | 5,200 | 1,200 |
| 9 | 2024-25 | 8,000 | 800 | 4800 | Nil |
| 10 | 2025-26 | 4,000 | 400 | 4,400 | Nil |