education loan

Education Loan

Students have different take on how to finance their higher education. It also depends on the financial condition of the family.

Students pursuing Graduation mostly depend on their parents to finance whereas postgraduate students go for education loan because they are now mature enough & do not want to put any financial burden on their parents.

Best part of taking a Education loan is that one can claim income tax deduction on interest part u/s 80 E for the current assessment year if the following conditions are fulfilled:

Person taking the loan must be an individual. He/She had taken a loan from any financial

institution i.e. a banking company or notified financial institution. Loan taken from relatives & friends is not eligible for 80 E deductions.

The loan was taken by the taxpayer for the purpose of pursuing his own higher education or higher education of relatives i.e. spouse, children's, student for whom the taxpayer is a legal guardian.

Who is eligible for deduction:The  person who took the loan is eligible for deduction on interest amount repaid u/s 80 E. In case father had taken the loan for child education, father can claim deduction, not son.

So it should be clearly mentioned in the loan form in whose name the loan is taken. This is one of the important step in the whole process. Factors such as tax bracket of parent, expected earning of the student & future liabilities of student & guardian should be kept in mind while taking the loan to avail maximum benefits u/s 80 E.

Student Eligibility:1. The student should be an Indian National2. Should have secured admission to a higher education course in recognized institution in India or Abroad through entrance test / Merit based selection process after completion of 10+2

Repayment of Loan:Repayment of loan is expected to come from future earnings of the student after completion of education.

Loan repayment is fixed by banks on EMI basis. EMI has two parts 1.) Interest 2.) Principal Amount. Tax deduction is given only on interest amount repaid.

Insurance: It’s better to take a term plan to the extent to which loan is availed.

In case of demise of the person who took the loan, parents or the guardians or the 3rd party will not be liable to pay back the loan.

The best part is, term plans are not so expensive.

Prepayment of loan amount:1. There is no prepayment charges2. If the loan is repaid before the emi starts than firstly interest portion will be repaid. In the example interest for the 1st year is Rs.60,000.

Suppose Ritu wants to prepay the loan upto Rs.50,000 before the emi starts, in this case interest amount upto Rs. 50,000 out of 1st year interest will be waived off 1st .

Also interest rate upto 1% is slashed in case of prepayment of loan before the emi starts.

There are various things to be kept in mind before prepayment of education loan such as your tax bracket, interest rate of fixed income securities such as bank fd’s, interest rate at which loan is availed.

Source:(http://www.financialkundali.com/68#.Vpi7hbZ97Dd&gsc.tab=0)

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