Deduction in respect of interest loan taken for higher education [Section 80E] :
(i) Section 80E provides deduction to an individual -assessee in respect of any interest on loan paid by him in the previous year out of his income chargeable to tax.
(ii) The loan must have been taken for the purpose of pursuing his higher education or for the purpose of higher education of his or her relative i.e. spouse or children of the individual or the student for whom the individual is the legal guardian.
(iii) “Higher education” means any course of study (including vocational 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. Therefore, interest on loan taken for pursuing any course after Class XII or its equivalent, will qualify for deduction under section 80E.
(iv) The loan must have been taken from any financial institution or approved charitable institution.
(v) The deduction is allowed in computing the total income in respect of the initial assessment year (i.e. the assessment year relevant to the previous year, in which the assessee starts paying the interest on the loan) and seven assessment years immediately succeeding the initial assessment year or until the interest is paid in full by the assessee, whichever is earlier.
(vi) “Approved charitable institution” means an institution established for charitable purposes and approved by the prescribed authority under section 10(23C) or an institution referred to in section 80G(2)(a).
(vii) “Financial institution” means –
(1) a banking company to which the Banking Regulation Act, 1949 applies (including a bank or banking institution referred to in section 51 of the Act); or
(2) any other financial institution which the Central Government may, by notification in the Official Gazette, specify in this behalf.
Illustration
Mr. B has taken three education loans on April 1, 2015, the details of which are given below:
| Loan 1 | Loan 2 | Loan 3 | |
| For whose education loan was taken | B | Son of B | Daughter of B |
| Purpose of loan | MBA | B. Sc. | B.A. |
| Amount of loan (Rs) | 5,00,000 | 2,00,000 | 4,00,000 |
| Annual repayment of loan (Rs) | 1,00,000 | 40,000 | 80,000 |
| Annual repayment of interest (Rs) | 20,000 | 10,000 | 18,000 |
Compute the amount deductible under section 80E for the A.Y.2016-17.
Solution
Deduction under section 80E is available to an individual assessee in respect of any interest paid by him in the previous year in respect of loan taken for pursuing his higher education or higher education of his spouse or children. Higher education means any course of study pursued after senior secondary examination.
Therefore, interest repayment in respect of all the above loans would be eligible for deduction.
Deduction under section 80E = Rs 20,000 + Rs 10,000 + Rs 18,000 = Rs 48,000.