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Query ]

Is there any limitation of amount of deduction that is available against educational loan? I have availed the education loan for my son. Whether deduction could be claimed by my wife if she repays the loan? [R.Y.]
Education loan carries a tax benefit subject to various other terms & conditions attached thereto. For the mass benefit, I am elaborating the provisions related to education loan as under:
  1. Deduction U/s 80E towards interest on loan taken for higher education is available U/s 80E of the Income Tax Act-1961. It is available only to an Individual who has taken the loan and not to any other person.
  2. The loan could be availed from the specified financial institution or approved charitable institution for the higher education of self or specified relatives. In short, no deduction U/s 80E shall be available in respect of loan taken by an employee from employee co-operative society or from private sources. [Financial institution, for the purpose, means a banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking institution referred to in section 51 of that Act); or any other financial institution which the Central Government may, by notification in the Official Gazette, specify in this behalf. HDFC Ltd & Credila Financial services private limited are notified financial institution for the purpose of section 80E].
  3. The higher education means any course of study 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 authorized authority.
  4. “Relative” for the purpose of deduction means spouse & children of that individual. Even legal guardian of student can claim the deduction u/s 80E.
If all above conditions are satisfied, entire amount of interest paid would be available as deduction. The deduction would be available from the year in which individual starts paying the interest and seven subsequent assessment years. There is no ceiling on the upper limit for claiming interest amount as deduction. No deduction towards the repayment of the principal portion of the loan is available as deduction. In your specific case, repayment of loan by your wife would not make her eligible to claim the benefit of deduction bestowed by section 80E of the Income Tax Act-1961.

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