Seeking education loan? It will also help to save income tax under Section 80E - What you should know

Right education is an important pillar for a great career. It acts as a bridge for a person to reach towards his or her dream profession. But, fine education comes at a high cost. And, the price is only increasing with each passing year. This has made seeking education loan a necessity for many, especially in case of courses offered by foreign universities. Whether you want to pursue a course in India or abroad, there are a number of banks that provide education loan. The interest rate charged on these loans differ with each bank and the loan amount. 

Financial Planner Poonam Rungta told Zee Business Online that the demand for education loan has certainly increased due to higher cost of education. She said that it has also made it easier to get the loan. "It is easy and hassle free to get an education loan these days, one should opt for the best available in the market. Expensive higher education has increased the overall demand for loans among middle class," she said. 

An education loan is not only used to fund higher studies but can also help to save tax as per Section 80E of the Income Tax Act, 1961. ''There are tax benefits under section 80E for the interest paid," Rungta added.

Here is what you need to keep in mind while seeking tax benefit:

1. The tax benefits on education loan can only be claimed by students and that too just for the interest part. "The tax benefits are only for the students, not parents. Only the interest expenses can be availed for tax benefits instead of the principle amount," Pankaj Mathpal, MD, Optima Money Manager, told Zee Business Online.

2. The principal part of the loan doesn't qualify for tax benefit but, there is no upper limit for grant of deduction in respect of interest on loan for higher education and the rate of interest which will be allowed as a deduction.

3. The deduction can only be claimed by the person on whose name the loan has been taken. 

4. Earlier, the benefits were only available 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. But, now it can also be availed on vocational studies. 

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Other benefits of education loan:

1. Loans below Rs 4 lakh, does not require a guarantor. ''Loan amounting more than Rs 4 lakh requires collateral under different categories as per bank norms'', Poonam Rungta said. 

2. Repayment schedule starts after the completion of course. ''The repayment schedule starts after 6 months of job's commencement or after 1 year of completion of the course, whichever is earlier", Pankaj Mathpal said.

3. More discounts and cheaper interest rates are available for female candidates. 

Eligibility for the loan:

1. The applicant should be an Indian resident (valid Indian passport, in case of an NRI)

2. Applicant needs to complete all the formalities of documentation as per the bank's guidelines.

3. He/She is only eligible for a loan, if already passed the required entrance exam for admission in the specific course.

4. The courses and programmes should be from a recognised university or institution throughout the world.

5. Fulfillment of criteria's like family income, health check-ups, ITR statements etc, as per bank's demand.

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Rungta said that the tenure of the loan can be stretched from five to 15 years, depending upon the bank. However, an applicant should carefully read the terms and conditions of the bank before applying for the loan. The loan EMIs should be kept as per requirements and needs of an individual or his\her family.