As there is an inflation in the cost of education is significantly higher than the overall consumer price inflation, overseas education is becoming pricier with each passing year. In such a situation it is very challenging for parents to fund the education of their kids. So, many of them have to resort to overseas education loan.
This education loan can be availed only by the person who has an offer letter. Do not think that once you apply study loan for abroad studies means, it’s a debt for the next 7 to 15 years. There are perks to it as well.
A study abroad loan not only helps you in financing your overseas studies, but it even helps in saving a lot of tax as well.
Now you might be wondering how? This article is your answer.
The interest paid on an education loan and are repaying the same, then that education loan is allowed as a deduction from the total income under Section 80E. However, the interest part of the EMI is eligible for the deduction provided. The principal part of the EMI will heed you no tax benefit for.
Essential Conditions for Claiming This Deduction Are:
1. Who can claim this deduction?
The person who has taken the loan can claim this tax deduction and no one else. This is not applicable for any other type of Taxpayer as well. This loan must be taken for education purpose of the student holding offer letter only.
2. Where can this loan be taken?
The overseas education loan must be taken from recognised financial institutions like Nationalised Banks, Private Banks and NBFC (Non-Banking Financial Company). Loans taken from any other non-trusted financial institutions, family or friends do not fall into this category of Section80E.
3. The purpose of the loan
This loan amount is granted for education in foreign countries. The amount granted for studies should not be utilised for any other purpose. All the overseas education loan requirements must be fulfilled for the smooth processing of the loan process. UG and PG Diplomas, Certificate Courses, Graduate and Postgraduates applicants can avail this loan and be benefitted.
4. Deduction amount
In case of an education loan, the applicant gets the privilege of the moratorium period where the applicant or the co applicant pays the Simple Interest, the moment the loan is disbursed. This Simple Interest may or may not be paid every month which is purely dependent on the wish of the applicant or co applicant. The tax deduction is allowed on this total interest part paid every month. In case the applicant opts to pay the Simple Interest only then the deduction can be claimed. This deduction is not applicable on the EMI. However, a certificate from the bank is required to segregate the principal and the interest amount of the education loan paid by the applicant during the financial year. The total simple interest paid will be allowed as a deduction and no tax benefit is allowed for the principal repayment.
5. Period of deduction
The best part is that, as soon as the applicant pays the Simple Interest, the deduction for tax can be claimed from the year in which the repayment of the loan began. It is available only for 8 years. This means that tax deduction will be allowed for 5 years the complete repayment of the loan is done in 5 years only, and not 8 years.
This article shows that no other loan gives tax benefit, but education loan does and eases your burden of loan repayment to a certain level. Contact the Best Bank for Overseas Education Loan and apply for the same soon.
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