Education Loan

Let’s read about the 5 most important facts on Education Loan tax benefits:

Section 80E Income Tax Deduction

A person can claim the interest portion of a Loan under Section 80E of the Income Tax Act.  Citizens can make use of Section 80E of the Income Tax Act, which is targeted solely at the educational sector. Only Education Loans are eligible for tax deductions under Section 80E. Maximum tax deduction amount

Under Section 80E of the Income Tax Act, you may claim the cost of Education Loans as part of the tuition fee you pay to any college, university, or other educational institution. On courses that you, your spouse, and your children enroll in, you can claim Educational Loan tax benefits. You can deduct such debts from your taxes in India whether you took out an Education Loan for a study in India or overseas. The only requirement is that the Loan must be obtained from the Banks and NBFCs that RBI has authorized.

Eligibility for tax deductions

Only individual taxpayers are eligible for Education Loan tax benefits. Under Section 80E of the Income Tax Act, Hindu undivided families (HUFs) are not eligible for tax deductions.

If the following conditions are met, you can claim tax advantages for an Education Loan:

• You have obtained a Loan for your child;
• You obtained the Loan for your own use;
• You obtained the Loan on behalf of your spouse;
• You are the borrower’s legal guardian, according to the Loan application.  

Tax deduction criteria

You must be aware that the tax advantages are only applicable to the interest portion of Education Loans, not the principal amount. There is no upper limit to your savings, and you can deduct all of the interest that is due in a given fiscal year.

Tax benefits from Banks and NBFCs

Section 80E tax deductions are only available if you borrowed money for your study from a legitimate Bank or Non-Banking Financial Companies (NBFCs). Therefore, if you borrow money to pay for your higher education from a friend or a relative, you will not be eligible for any tax benefits.

Moratorium Period:

The moratorium period is a distinctive aspect of education loans. This provision allows you to opt for a deferment of EMI payments for a maximum of 12 months after completing your studies or within 6 months of commencing employment, whichever comes earlier. However, the precise length of the moratorium period is subject to the policies of the respective bank.

Choosing the Right Time to Begin Education Loan Repayment:

While a moratorium period is available, it is advisable to initiate the repayment of your education loan at your earliest convenience. It’s important to note that the moratorium period does not exempt you from interest charges. Particularly in India, education loan interest rates are notably high. 

Interest continues to accumulate during the moratorium period, even though you aren’t required to repay the principal amount. This results in a higher burden of interest and an increased overall loan cost. Moreover, starting repayment early can contribute positively to building a favorable credit score.

Process for Repaying Education Loans:

The process for repaying an education loan is relatively straightforward. Contact your bank’s manager to establish an arrangement for automatic deductions from your account. Additionally, you may want to explore the variety of education loan repayment options that are available in India.

Additional Points to Consider:

The repayment duration can vary between different banks and is often contingent upon the amount of the loan you’ve availed. For students pursuing education abroad, the repayment period can extend up to 15 years, affording them ample time to gradually settle the loan through smaller installments.

In regard to prepayment of education loans, it’s worth noting that banks generally do not impose charges. However, it’s typically not recommended to prepay or fully settle the education loan ahead of schedule. This is primarily due to the fact that education loans offer potential tax deductions on the interest paid, as outlined in Section 80E of relevant tax regulations.

• Age: Most lenders have a minimum and maximum age requirement for loan applicants. Typically, you need to be of legal age (18 or older) to apply for a loan.
• Course/Program Eligibility: Education loans are often tied to specific educational programs or courses. Lenders may have a list of eligible institutions and programs that qualify for loans.
• Admission Offer: Many lenders require proof of admission to an eligible educational institution before approving a loan application.
• Academic Performance: Some lenders might consider your academic performance as part of the eligibility criteria. This could include factors like your high school or previous education grades.
• Co-borrower or Guarantor: If you have limited credit history or income, some lenders might require a co-borrower or guarantor (usually a parent or guardian) who will share the responsibility of repaying the loan if you are unable to do so.
• Credit History: Student’s as well as their co-borrower/guarantor’s credit history and credit score can play a significant role in determining your eligibility for an education loan. A good credit history can improve your chances of approval and may lead to more favorable loan terms.
• Income/Financial Ability: Some lenders may consider your ability to repay the loan based on your income or your co-borrower’s income.
• Loan Amount: The loan amount you’re requesting in relation to the cost of the program might affect your eligibility. Lenders may have specific limits on the loan amount they are willing to offer.
• Collateral or Security: In some cases, lenders might require collateral or security against the loan, especially for larger loan amounts. This could be in the form of property, investments, or other valuable assets.
• Documentation: You will likely need to provide various documents as part of your loan application, such as proof of identity, proof of admission, income documents, and more.