The youth of India represent aspirations – hopes and dreams of a better future and a better country. And all these dreams only come true when they are supported by the right education, be it professional university courses or vocational training.
Diya belonged to a regular middle-class family, with supportive and loving parents who stood by her through thick and thin to help her achieve her big dreams. She finished her Bachelor’s degree with flying colours from a renowned college and then set her sights abroad for a Master’s degree. Alas, it was too expensive, and she didn’t want to deplete her parent’s hard-earned retirement fund. But an education loan was her light at the end of the tunnel. This personal loan helped propel her to the university of her dreams, and now she studies hard, with hope and determination glinting in her eyes.
Why An Education Loan?
Paying for your higher education, whether in India or abroad, can be a daunting prospect. As a student, it’s unlikely you’ll have the lakhs required for a degree saved up. However, instead of dipping into your parents’ retirement fund, consider applying for an education loan. Not only is it a sustainable method of funding your education and reduces the pressure on your own funds, but Section 80E also allows you to save tax on the education loan. Read on to find out more about this tax benefit.
What is Section 80E?
According to Section 80E, the interest on the education loan you are paying off is deducted directly from your total income without any tax implication on it. Therefore, you pay exactly the interest rate, with no additional tax charges on it. Please be aware that this is not applicable on the principal amount.
Who Can Avail This Benefit?
This benefit can only be availed by an individual. This benefit is also only available to people who have applied for themselves, their spouse, their child, or any individual the applicant is the legal guardian of. Also, the loan should be taken only from a registered bank or financial institution, like Tata Capital. The benefit will not apply for loans taken from friends, relatives or employees.
Which Education Streams Qualify For This Loan?
All streams of education and vocational training in India and abroad, subsequent to secondary education, are eligible for this benefit.
The tax deduction is only applicable on the interest part of the total EMI you will pay to the bank. You will need to obtain a certificate from the bank, which will ensure that the bank will separate the principal amount from the interest amount, and only tax the principal. No tax deductions are allowed from the principal amount. There is no upper limit of interest paid to which the benefit will apply.
How Long Will The Deduction Be Valid?
The deduction is valid for only up to 8 years after you start paying off the loan. The tax benefits, however, won’t apply if you finish paying off the loan before that time, say, in 5 years. Also, the benefit will stop after 8 years, so it is better if you finish paying off your loan before that time.
How This Deduction Will Affect You
Say you have applied for an education loan at an interest rate of 10%. Now, when there is no tax slab, the effective rate of interest will remain 10%. However, due to this benefit, tax slabs of 5% to 30% can be applied to the interest. Therefore, at 30%, your effective interest rate will be 6.48%, which leads to huge savings.
With a reputed financial institution like Tata Capital, you can finance your education with attractive personal loan interest rates. Moreover, you also save a good deal of tax on your hard-earned money!