Section 80E : Deduction for Interest on Education loan

Q. Who is eligible for deduction u/s 80E?

A. Loan should be taken by individual for pursuing higher education of self, spouse or his /her Children’s. Hence parents are also eligible to claim deduction of interest paid by them on loan taken for their children’s education. This deduction is not available to HUF.

Q. What is eligible amount?

A. Only interest paid on an educational loan is allowed as deduction u/s. 80E of The Income Tax Act, 1961, out of his/her income chargeable to tax i.e. Deduction will be allowed only when actual interest is paid.

Q. How much amount is deductible?

A. There is no limit for amount of repayment of interest. Unlimited amount of interest can be deducted under this section. However there is no benefit available on the repayment of principal amount of the loan. The assesse can claim the amount of interest in the initial assessment year & carry forward up to 7 assessment years.

Deduction is allowed for a continuous period of eight years, starting with initial assessment year in which the assessee  starts paying the interest on the loan or until the interest is paid in full whichever is earlier. 

Q. Can loan be taken for any education?

A. The loan should be taken for the purpose of higher education.

Q. Can higher studies be pursued outside India?

A. There is no condition that the course should be in India.

Q. Can loan be taken from relatives?

A. The loan should be taken from any financial institution or any approved charitable institution. Interest on Loan taken from relatives or friends will not be eligible for deduction under section 80E.


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Public Provident Fund (PPF): The Tax Advantage.

The Public Provident Fund Scheme has introduced by Central Govt. on 1st July 1961. PPF account cannot be opened in joint names or as company. It also prohibits NRI’s from opening an PPF account.

SUBSCRIPTION & FREQUENCY:

·         The minimum amount on has to deposit in financial year is 500/- not paid in instalment & in multiple of Rs. 5/- and the maximum amount on has invest in PPF is Rs. 100000/-** whether in his name or jointly with minors and in a maximum of 12 installments in that financial year.

·         A PPF account will be discontinued if minimum amount of Rs. 500/- not deposited in year but it can be restored with deposit of Rs. 50/- per year of default plus minimum subscription.

·         The account under this scheme can open in any branch of State Bank of India, and its subsidiaries, or in any Head Post Office or any Selected Post Office or any of Nationalized Bank.

TERMS:

·         The term/duration of PPF account is 15 years from the end of financial year in  which the account is opened but can be extended for one or more block of 5 years after 15 years

·         Subscriber can avail the withdrawal facility from the PPF account after the expiry of the 5 financial years from the end of year in which the initial subscription was made by applying in form C.

·         Only one withdrawal in a year is allowed.

TAX BENEFITS:

·         The interest recoverable against loan taken from PPF account shall accrue to the Central Government.

·         U/s 80C of Income Tax Act, 1961 investment in PPF is qualified for deduction. Investment in PPF account earns interest 8% per annum compounded annually.

·         The interest earned in PPF account is tax free U/s 10(11) of the income tax act

·         Deposits credit balance under in PPF account is free of Wealth Tax.

OTHER BENEFITS:

•    Loan can be taken after the expiry of one year from the end of the year in which initial subscription is  made but before expiry of five years from the end of the year in which initial subscription was made. Application for the same has to make in the form D.
•  Loan is allowed up to 25% of balance of PPF account including interest at end of second year immediately preceding the year in which the loan is applied.
• Subscriber can avail the withdrawal facility from the PPF account after the expiry of the 5 financial years from the end of year in which the initial  subscription was made by applying in form C

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