1. Facts of the Case
- Mr. A, a government employee, has taken an education loan of ₹2,00,000.
- The loan has been borrowed for the higher education of his son ‘B’, who is pursuing a medical degree.
- Mr. A is preparing to file his Income Tax Return (ITR) and seeks to know:
- Whether the interest on education loan qualifies for any tax deduction.
- Under which section of the Income Tax Act such a deduction can be claimed.
- Are there any conditions or limitations attached to this deduction?
2. Issues in the Case [Questions]
- Is Mr. A eligible to claim a deduction for interest on education loan under the Income Tax Act?
- Under which section of the Act can he claim this deduction?
- Is the deduction available for principal repayment or only for interest payment?
- What are the conditions, such as eligible courses, institutions, and time limits?
3. Legal Principles Covered
A. Section 80E of the Income Tax Act, 1961 – Interest on Education Loan
Section 80E allows deduction on:
Interest paid on loan taken for pursuing higher education of:
- Self,
- Spouse,
- Children, or
- A student for whom the individual is a legal guardian.
- Self,
- Spouse,
- Children, or
- A student for whom the individual is a legal guardian.
Key features:
- Deduction is available only on interest, not on principal.
- The loan must be taken from a banking company or approved financial institution.
- “Higher education” means any course of study pursued after passing the Senior Secondary Examination (Class 12 or equivalent), in India or abroad.
- Deduction can be claimed for a maximum of 8 years, starting from the year in which the interest begins to be paid.
B. Eligibility of Mr. A:
- Mr. A is the father of the student (his son ‘B’).
- The course (MBBS/medicine) qualifies as higher education.
- Assuming the loan is taken from a recognized financial institution, and interest payment has started, he satisfies all conditions under Section 80E.
C. Relevant Judgements / Clarifications:
- CBDT Circular No. 8/2012 – Confirms that interest paid on education loan is eligible for deduction under Section 80E if used for higher education.
- Income Tax Appellate Tribunal rulings have consistently held that deduction under Section 80E is available even if the child is not financially dependent.
4. Possible Judgement / Advice
Based on the legal provisions and facts of the case:
- Mr. A is eligible to claim deduction under Section 80E of the Income Tax Act for the interest paid on the education loan taken for his son’s medical education.
- The deduction can be fully claimed every year for up to 8 consecutive years, starting from the year in which the repayment of interest begins.
- There is no upper limit on the amount of interest eligible for deduction.
- No deduction is allowed for the principal repayment under Section 80E.
Additional Advisory:
- Ensure the loan is from a recognized financial or approved charitable institution.
- Maintain records of interest certificates from the bank for each financial year.
- Claim the deduction under “Chapter VI-A” → Section 80E when filing the income tax return.
