With sky-rocketing costs of higher education, it is of late becoming imperative to take an education loan. If you do not arm yourself with a student loan, you will have to do away with your dreams as you will not be able to fund your higher studies. Not just for studies abroad, even if you want to do a good course in a premier institute inside the country, costs are such that you cannot manage it without taking an education loan.
However, there is nothing to worry with the mere mention of the word loan. Financial institutions such as Tata Capital, these days, offer education loan on very easy terms and rates so repayment of the loan is no big deal. Also, the cap on education loan is very high in institutions such as Tata Capital. While they give a minimum of Rs 75,000 as a student loan, the upper limit is Rs 25 lakh, which is a lot for any leading educational institute.
Education loan is like a personal loan for education so the interest rate is at par with personal loans. For instance, Tata Capital offers education loans at 11.25 per cent, and you can pay off this student loan over as long as six years. The approval for this education loan is quick and fast, and the documentation is minimal.
The best part of an education loan, however, is the tax benefits that you get once you avail this student loan.
Additional Read: Education Loan from NBFCs: Pros and Cons
According to Section 80E of the Income Tax Act, 1961, the interest paid on the education loan can be claimed as a deduction. Let’s look at a few aspects of this deduction:
- You must know that under Section 80E of the Income-tax Act, benefit on education loan can only be claimed on the interesting part of the loan. The principal part does not qualify for any tax benefit. So, if you have taken lumpsum money as a student loan, you will not get the benefit on that entire amount, but the interest that you are paying on that lump sum amount.
- For calculating your taxable income for a particular year, the total interest part of the education loans repaid during that year can be deducted. There is no upper limit for this. You can claim as much deduction as you want to, depending upon the interests that you have paid on your education loans.
- The income tax deduction on education loan is available for up to eight years or until the payment of interest in full, whichever comes is earlier. For instance, if you repay the loan within five years, you can claim a deduction only till five years. And, if your repayment period, for instance, is nine years, even then, you will only get tax benefits for eight years.
- The income tax deduction available on education loan is allowed only if you have taken the education loan from a bank or any notified financial institution. Therefore, if you want to avail tax benefits on education loan, first and foremost find out if a financial institution falls in that category. Tata Capital, for instance, is approved under this scheme, so if you avail a personal loan for education from Tata Capital, you will be able to enjoy all the tax benefits under Section 80E.
- Under Section 80E, the interest on the education loan taken for higher education for one’s own self or spouse or children or the student for whom the person is a legal guardian is allowed for deduction. However, do remember that education loan taken for siblings or other relatives do not qualify for Section 80E benefit.
Additional Read: Secured Vs Unsecured Education Loans: A Detailed Guide
Now that you know about the tax benefits of education loan, and how should you be able to avail it, do not worry. Set sail to give wings to your dreams by taking an education loan.