Any individual who has applied for a loan for higher education can avail of the benefits of tax savings provided by Section 80E of the Income Tax Act, 1961. Even if an individual has availed the maximum available deduction of INR. 1,50,000 under section 80C, they can still avail deduction under Section 80E.
Note: Section 80C provides for deduction in respect of tuition fees paid for education while Section 80E provides for deduction for the interest on loans taken for higher education.
The deduction amount under Section 80E is only the interest paid on the loan taken for higher studies. This amount has no upper limit, you can get tax benefit on the entire amount of interest paid but not on the principal amount. (Deduction under Section 80E can be availed irrespective of the amount of loan which can range from INR 1 lac to INR 20 lacs or even more).
The deduction under section 80E is allowed only if the education loan was taken for higher studies. Higher studies refer to education after completing the Senior Secondary Examination (SSE). It includes both the vocational courses as well as the regular courses in India or abroad. Thus, loans taken for post-graduate courses in medicine, management, engineering, applied science, etc. are covered under Section 80E.
The deduction under section 80E can be claimed from the year in which you start paying interest on the loan for higher education. If you have started paying interest within the same year of borrowing, then you can claim a deduction for the payment of interest on this loan. The maximum period allowed to claim the deduction is up to 8 years starting the year in which you start repaying the interest on the loan or till the time interest is paid fully, whichever is less.