Presently in terms of section 80E of the Income Tax Act, 1961 a deduction is allowed in respect of interest paid by an assessee on loan taken for higher education. An amendment in this section has been effected by the Budget Finance (No. 2) Act, 2009. This amendment will definitely provide more assistance & help to all such persons who are going to claim deduction in respect of interest payment on loan taken for the purpose of higher education.
The explanatory memorandum of the Finance (No.2) Bill, 2009 specifically states that Section 80E of the Income Tax Act provides for a deduction to an assessee, being an individual, on account of any amount paid by him in the previous year by way of interest on loan taken from any financial institution or any approved charitable institution for the purpose of pursuing higher education in specified fields of study. Under the existing provisions, the deduction is available only for pursuing full time studies for any graduate or post-graduate course in engineering, medicine, management or for post-graduate course in applied sciences or pure sciences including mathematics and statistics. With the objective of fostering human capital formation in the country, it is proposed to amend the provisions of section 80E of the Income Tax Act so as to extend its scope to cover all fields of studies (including vocational studies) pursued after passing Senior Secondary Examination or its equivalent from any school, board or university recognized 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.
The above amendment will be applicable for whole of the Financial Year 2009-10 relevant to the Assessment Year 2010-11 as well as subsequent years thereafter. As per the above amendment greater flexibility will now be enjoyed by going in for higher education and taking loan for such higher education. With the change in the definition of higher education greater flexibility will be visible now for all those persons who are going to opt for availing tax concession in respect of interest on educational loan. As per the amendment “higher education” means any course of study pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognized by the Central Government or State Government or local authority or by any other authority authorised by the Central Government or State Government or local authority to do so. A clear reading of the above definition would bring home the conclusion that now the restrictions for availing deduction in respect of loan for higher education will not apply to any specific educational course because now what all is needed is just to pass out Senior Secondary examination. The student can opt for any course of study for his higher education. Thus, now the interest on loan for higher education can be claimed if the loan is taken for any of the higher education activities by taking any course of study. However, all those desiring to take the advantage of the above deduction should note that the loan should have been taken by the assessee from any financial institution including Bank or any approved charitable institution for the specific purpose of pursuing higher education.
Another very interesting special advantage of section 80E is that the deduction in respect of interest on loan for higher studies can be taken by the assessee for pursuing his own higher education as well as for the purposes of higher education of his relative. The spouse and the children of the assessee would be treated as relative for the purpose of this section. Hence, great advantage can be taken by individual tax payers by taking the education loan either for self or the spouse or the children.
(Articles by Subhash Lakhotia, Tax Expert)
The author is tax & investment consultant at New Delhi for last over 40 years. He is also Director of M/s R N Lakhotia & Associates LLP & The Strategy Group. E-mail: [email protected] M 9810001665 )
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