Nowadays, in India, the college/professional/overseas course fees and other expenses are going up. So many middle class people are compelled to take loans. The following points may be noted by these type of people who can avail tax benefits by taking educational loans. Only interest paid is tax free for the parents and not for principal which should be noted.
Salient features for getting tax benefits on interest:(sec.80E)
- Educational loans are to be taken only from banking institutions, NBFC, approved charitable institutions.
- Loan amounts to Rs.10 lakhs for courses in India and up to 20 lakhs will be given by banks etc. for pursuing course overseas.
- Up to Rs.4 lakhs, there is no need of any security. Up to 7.5 lakhs, third party guarantor or a co-borrower may be accepted. Beyond 7.5 lakhs tangible assets are are required as collateral.
- Parent falling in high tax bracket (30%) can get the maximum benefit as education loan carries only 12% and net effect after adjustment of interest repayment will be around 8.72%.
- The deduction for interest payment is available for eight consecutive years.Interest can be started after one year or after moratorium period.
- If borrower opts for moratorium period, then principal and interest can start either one year after the course is complete or six months after landing in a job by son which ever is earlier. In these cases, the eight year period for income tax benefit for interest payment will start from the year after moratorium period.
- If the student/son himself is a borrower, then he can get tax benefit when he repays loan.
- A student having total family income less than Rs.4.5 lakhs can avail the benefit of interest subsidy under CSIS for the moratorium period.