Question 5 (a)

Deduction under section 80E for interest on an education loan (as set, 1961 Act, AY 2017-18)

5 marks

Time to write: About 10 minutes

From an older CBCS paper

Question

Question 5 (a) · 5 marks

Discuss the provisions contained in section 80E of the Income Tax Act, 1961 on deduction in respect of interest paid on a loan taken for pursuing higher education. 5

Paper note: The as-set version: set and answered under the Income-tax Act, 1961 for assessment year 2017-18 (previous year 2016-17), with the dates as printed.

Reworded from the university paper; the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.

Before you write

Read off the question and its marks

10 minfor 5 marks

Read from the question

section 80EThe section is named: open with what it says, then explain or apply it.

Write it in this order

Read; underline the asks; jot your points 1 min
1 Who may claim and the qualifying loan 1½ marks 2 min
2 Higher education and relative 1 mark 2 min
3 Amount and period of the deduction 1½ marks 2 min
4 Example 1 mark 2 min
Check: every ask answered, key terms underlined 1 min

1234

Short on time? Trim steps 1 and 3 evenly rather than skip one: each is capped at its own marks. End with step 4 in a line or two.

Try it first. About 10 minutes for 5 marks. Write it out, then open the solution.

Solution

Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.

Who may claim

Only an individual (section 80E(1)). A Hindu undivided family or any other person cannot claim it.

The loan

It must be taken by the individual himself.
It must be taken from a financial institution or an approved charitable institution (section 80E(1)). A financial institution is a banking company governed by the Banking Regulation Act, 1949 (a bank or banking institution covered by section 51 of that Act included), or any other financial institution the Central Government has notified in the Official Gazette for this purpose (section 80E(3)(b)). An approved charitable institution is an institution specified in section 10(23C), or one established for charitable purposes and approved by the prescribed authority under that clause, or one referred to in section 80G(2)(a) (section 80E(3)(a)). A loan from a relative or friend does not qualify, nor does one from an employer unless the employer is itself such an institution.
It must be for the higher education of the individual or of a relative: the spouse, the children, or a student of whom the individual is the legal guardian (section 80E(3)(e)).

Higher education

Any course taken up after a student has passed the Senior Secondary Examination, or an equal examination, of a recognised school, board or university (recognised by the Central or a State Government, a local authority or an authority they empower) (section 80E(3)(c)). It covers vocational as well as regular courses, in India or abroad.

Amount of the deduction

The whole of the interest paid in the previous year, out of income chargeable to tax, is deducted; there is no upper limit (section 80E(1)). The repayment of the principal is not deductible under this section.

Period of the deduction

The deduction is allowed for the initial assessment year and the seven assessment years immediately following, or until the interest is paid in full, whichever is earlier (section 80E(2)). The initial assessment year is the assessment year of the previous year in which he first pays interest on the loan (section 80E(3)(d)).

Example

Mr. Karan took a bank loan in 2014 for his daughter's MBA and started paying interest in 2015-16. In 2016-17 he pays ₹1,20,000 of interest and ₹2,00,000 of principal. He can deduct ₹1,20,000 under section 80E for assessment year 2017-18. The deduction runs from assessment year 2016-17 (the initial year) to assessment year 2023-24 at the latest.

Where the 5 marks sit

#	Component	Marks
1	Who may claim and the qualifying loan	1.5
2	Higher education and relative	1
3	Amount and period of the deduction	1.5
4	Example	1
	Total	5

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