Are you paying education loan; here's how you can avail tax benefit
An Education loan plan is considered as safe and efficient way to gain finance for when compromising on your child’s education is not an option.
Among many categories of debt, education loan is one of them which helps students to accomplish their studies either in India or in foreign country.
With this financial support, provided at low-interest rates, youngsters have been facilitated by the government to pursue their dreams.
Here are key benefits of education loan, as per PolicyBazaar.
- Anyone can opt for Education loan to study in India for graduate, post-graduate, professional and/or doctoral courses/degrees.
- Loan cannot be assigned to the student alone, the parent or guardian needs to be co-signor for the loan.
- Female students are usually offered discounts and/or lower interest rates when it comes to education loans.
- The annual family income and the course pursued by the education loan applicant are primary determinants of the loan amount.
- Generally, loans below Rs 4 lakhs do not require a security or guarantor.
- Usually, the maximum loan limit for students studying in India is capped to Rs 10 - 15 lakh and up to 20 lakh for those who wish to study abroad with an Educational loan.
- The normal student loan repayment period is 5 to 7 years, but flexible options for settlement of education loans with longer time period, i.e. 10 to 15 years is also available.
The benefit of education loan also goes beyond financing money. This form of loan also enables a person to get tax deduction benefit U/s 80 (E) of the Income Tax IT Act and reduce tax liability in the proportion of the tax slab applicable on the individual.
Here’s what you need to know for claiming tax benefit, as per BankBazaar.
An eligible person can get tax benefits under Section 80 (E) of the I-T Act if you have taken a loan for higher studies for self, spouse, children or your legal ward.
However, tax deduction benefit is only applicable for the interest paid on the Education Loan and eliminating the principle amount.
Deduction for the interest on loan starts from the year in which an individual has started repaying the loan. The deduction is available only for 8 years.
It may be noted that Education Loan must be taken from a scheduled commercial bank or an eligible financial institution.
Extent of deduction U/s 80(E) is the entire interest amount paid on the Education Loan as there is no upper limit to it.
Under the list, which are considered in the interest payment are tuition fees, examination fees, library charges, refundable security deposit, essentials for education such as study table, books etc., travelling expenses, the cost of computers and more.
Moreover, the tax benefit under Section 80(E) is not restricted to students studying in India only, a person going for foreign studies can also opt this claim.
Also, in a situation where two different education loans are taken for your kids, one is entitled to claim the benefit for both the loans and the tenure to claim such benefit will be calculated separately for each loan.
Pay Education loan on time
To claim tax benefit, one must make sure to pay the interest amount on their education loan on time.
Thus, a discipline must be followed when repaying EMI’s of the education loan.
In case you delay repayment of Education Loan, your Credit Score may also get negatively impacted.
Bank Bazaar report says, "It is better to repay the loan amount on time and maintain a good score so that you can stay financially healthy for getting a bigger loan like Home, Car or even Personal in the future."
Any benefit in prepaying education loan?
Before adapting for pre-payment of education loan, a list of factors must be considered like - how much tax benefit would you avail if you prepay education loan and thereafter how much interest you would be able to save? If you do not repay the loan, then how much more interest you would be required to pay and what’s the maximum tax benefit you will get?
So it is always advisable to make correct decision before making repayment of education loan. One can also consult financial advisors for making such decision.