Jigar M. Patel
International Tax Attorney
Deduction under Section 80E of the I.T. Act
Section 80E provides for deduction in respect of any amount paid by an individual (without any monetary ceiling) by way of interest on loan taken from any bank or notified financial institution or an approved charitable institution for the purpose of pursuing his higher education. The benefit of this relief can be availed not only by the individual student, but also by his parents, legal guardian or spouse, if anyone of them has taken the loan for supporting the higher education of the student. This deduction is allowed for a maximum period of eight years starting from the year in which the taxpayer starts paying interest or until the interest payable on such loan stands paid in full, whichever is earlier.
Meaning of Higher Education
The meaning of the term ‘Higher Education’ for purposes of Section 80E is wide enough to cover any course of study pursued after passing the Senior Secondary Examination or its equivalent from any recognized school, board or university. What needs to be kept in mind is that for availing the benefit of this deduction, it is necessary to ensure that the payment of interest is made by the taxpayer out of his income chargeable to tax.
Illustration: Mr. Sharma is keen to send his son for MBA to the US. He takes a bank loan of Rs. 60 lakhs repayable at 10% interest per annum, to fund the higher education of his son. Since he is in the tax bracket of 31.20%, he would save tax of Rs. 1,87,200 on the interest of Rs. 6,00,000 paid by him on the loan taken for his son’s education and allowed as a deduction from his gross total income.
Tuition Fees eligible for deduction under Section 80C
Any payment as ‘tuition fees’ incurred for the full-time education in case of any two children of an individual, to any university, college, school or other educational institution situated within India, is eligible for deduction under Section 80C up to the limit of Rs. 1,50,000. It has been clarified that any payment towards any development fees or donation shall not be eligible for deduction.
Liberal Interpretation of the term ‘Tuition Fees’
‘Tuition’ as defined by the Oxford’s Dictionary means ‘teaching or instruction.’ There can be no restriction regarding the age of the child or class of study, as long as the fees paid are in the nature of tuition fees. Moreover, Section 80C makes reference to an educational institution, which would logically include a Coaching Class as well, where the student receives teaching or instruction. Therefore, fees for a Play School or Nursery, as well as the Coaching Class would very much qualify for deduction under Section 80C.
In a case where the tuition fees of the children exceed Rs. 1,50,000, the payment of the same can be split amongst the two parents, both of whom can claim the benefit of Section 80C within their respective limits of Rs. 1,50,000 each.
