Having best of education leads to successful life. But the cost of getting into the best of educational institutions is high which is why Education loan is regarded as the best option by parents. In the last 15 years, approximately 15% per annum is the rate at which education cost is increasing. Opting for an Education loan not only reduces your burden of supporting further studies but also saves your tax. Education loan availed from financial institution has got the tax deduction benefit under section 80E of Income Tax Act, 1961. Deduction is available to person who has taken the loan and repayment of loan is being made through his or her income on which he is liable to pay taxes.
- To avail education loan in India, one shall be an Indian citizen between 16-35 years of age who gets admission in an institute either in India or abroad. So, the education loan can be used for education in India as well as abroad. In India education loan can be taken for any subject that one wishes to pursue after completion of 12th or equivalent. Earlier education loan deduction for income tax purpose was available only for graduate or post graduate full time courses however the list got expanded in budget of 2009 and it became applicable for all fields of studies including vocational courses. One can take education loan for any field of studies such as science, management for either part time or full time.
- You can avail this benefit of claiming deduction for self, for children, for spouse and also for a child of whose you are a legal guardian. Tax deduction benefit can be taken for up to two children for tuition fees paid to any university, college or other educational institution.
- Not all loan you take are eligible for tax benefit under section 80E. The loan on which you can take tax benefit need to be taken from a financial institution that is bank or non-banking financial company or an approved charitable institution (approved under Tax Act, 1961). Money borrowed from relatives, friends or employers does not fall under the category of education loan.
- You can claim deduction only if you are paying EMI. The portion of Interest paid on an education loan can be claimed as deduction under Section 80E of the Income tax Act, 1961. However the principal portion of repayment you make does not qualify for tax deduction under section 80E.
The interest portion paid on EMI is eligible for deduction. There is no limit on the amount of interest that can be claimed as deduction. This benefit can only be claimed for eight consecutive years or till the time interest is fully repaid whichever comes earlier. It means if entire payments are done in say in 6 years only, then tax deduction will be allowed for 6 years and not for 8 years. These eight years can be counted from the year in which you as a borrower will start repaying. You will need to get a loan repayment certificate from the lender every year to claim.
For education loan upper limit of Rs.10 lakhs is there for education in India and Rs.20 lakhs for education abroad, This is what most of the financial institutions have. Regarding the security to be offered, most banks allow unsecured loans of up to Rs.4 lakhs or even up to Rs.7.5 lakhs in certain financial institutions. Above this security which is guarantee or collateral security is required. Talking about charges there is interest, processing charges or delay charges if you miss to pay EMI on due dates. Interest rate ranges from 9% to 18% and Processing charges varies, depends on the policy of financial institute. Repayment normally begins 12 months after the course ends or 6 months after you get a job, whichever is earlier.