Getting the best education leads to successful career and life. But the cost of getting into the best educational institutions in India or abroad is quite high that brings Education loan in picture and is regarded as the best option by parents. If we look in past few years, approximately at the rate of 15% per annum the cost of education is increasing. Education loan not only supports the aspiring students for the further studies but also helps to save your tax. Education loan borrowed from Banks/ NBFCs or any other financial institution has the provision for the tax deduction benefit under section 80E of Income Tax Act, 1961. The deduction is available to the person who has applied and taken the loan and the further repayment of loan will be made through his or her income on which the borrower is liable to pay taxes.
The part of interest paid as EMI’s is eligible for deduction. However, there is no bar on the amount of interest that can be claimed as deduction. But this benefit can only be claimed for the next eight consecutive years (from the date the borrower starts repaying the loan) or until the interest is fully repaid whichever comes earlier. This means that if the entire payments are made in say in 6 years only, then the tax deduction will be claimed for 6 years and not for 8 years. These eight years will be counted from the year from which you as a borrower will start repaying the loan amount. You will also need to get a loan repayment certificate from the lender every year to claim the tax benefits.
For education loan the higher limit to borrow for the further education is Rs.10 lakh in India whereas this increases to Rs.20 lacs in abroad. This is the general limit what most of the financial institutions have set. Regarding the collateral for the security of the loan certain amount is given as an unsecured loan which is up to Rs.4 lakhs and goes up to Rs.7.5 lakhs with certain financial institutions. Above this amount the security towards the loan which is also known as guarantee or collateral is required. Now, if we talk about the charges associated with the loan is the interest, processing charges or delay charges (in case if you miss to pay EMI on due dates). Interest rate varies from 9% to 18% and the processing charges depends on the policy of the particular financial institution. The repayment normally begins after the 12 months of the completion of the course or 6 months after you get a job, whichever is earlier or as discussed with your lender before you signed the contract.