Parents desire to give their children the best possible education to help them become responsible, self-dependent citizens of the country. However, many times good education is beyond their means, in which case they have two options: either fork out the money from their retirement savings, or take an education loan. Taking an education loan is always a better option for them, because they get income tax benefits, and anyway the child is going to take over the burden once their studies are over and they start earning.
Who Can Claim the Benefit of Income Tax Rebate on Education Loan?
The person in whose name the loan is taken is eligible for the education loan tax exemption under the Income Tax Act, 1961.However, the important thing to remember here is that only the interest component will be eligible for education loan tax exemption, and not the principal amount.
Education Loan Interest Rates in India
Education loan interest rates in India can range from 8.35 percent, being charged by Punjab National Bank, to 13.45 percent being charged by Axis Bank. The education loan interest rate depends largely on the amount of loan, the tenure, the age of the applicant, the course for which the education loan is being availed, etc. The education loan can be taken either for studies in India or abroad.
Who Can Avail of The Education Loan?
Only an individual can claim the education loan tax exemption. Therefore, the loan has to be in the name of the taxpayer, which can be either the child or the parent. The tax exemption can be claimed in cases where the parent is a co-applicant and is paying the EMI of the loan; the student who has applied for the loan and starts paying the EMI when they start earning; a spouse paying the EMIs too can claim tax breaks; or it can be a legal guardian who hastaken the loan in their name and are paying the EMIs. Other important things to consider are that the education loan should be taken from a nationally recognized bank or financial institution, not from friends or relatives. Also, the tenure of the education loan should not be more eight years to be eligible for income tax rebate. The income tax rebate will be allowed only on the interest component of the EMI of the education loan paid during the financial year.
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