Education and literacy are the primary indicators of the level of development of a society. Despite several efforts, India’s literacy rate only stands at 77%. As a result, it shows that individuals lack the overall development needed to comprehend their social, political, and cultural context. Education, therefore, plays a crucial role in uplifting the social and economic conditions.
On the brighter side, education is now highly prioritized by parents. India being the home to the largest youth population, the cost of education naturally becomes a significant liability.
According to an HSBC report: Higher and Higher, The Value of Education series, Indians spend $18,909 (Rs. 12.25 lakh) per child, while the world average is $44,221 (Rs. 29 lakh) per child, from primary school through university undergraduate levels.
Indian parents fund their children’s education about 89% of the time, 79% want them to proceed to post-graduation schooling, and 85% are willing to sacrifice for them.
According to these statistics, educating your child will be quite an expensive affair, and choosing a personal loan to finance your child’s education seems like a wise idea. By meeting the personal loan eligibility requirements, you no longer have to shoulder such a significant expense upfront.
Furthermore, an education loan can help reduce your tax burden. Under section 80E of the IT Act, you can deduct interest paid on loans taken for educational purposes from your income. In accordance with Section 80E, EMIs paid during the year are eligible for a deduction for the interest paid on those payments.
Conditions for availing of Sec 80E:
- A loan must be obtained from a financial institution to pursue higher education.
- An education loan should be documented on a bank document with the loan amount and interest listed separately for the year. This is required since the loan amount is not deductible.
- Deductions can be claimed for a period of eight years or until interest payment, depending on which occurs first.
- Education loans are applicable to spouses, children, and students under your legal guardianship.
- A deduction applies to credits taken after high school examinations or equivalents from schools, colleges, or universities accredited by the authority.
Deduction amount under Section 80E:
The interest you pay during a year is deductible from your taxable income and is subject to no maximum amount you can deduct.
Consider the following example to see how Gopal benefited from section 80E deductions.
Gopal has a personal loan to fund his son’s higher education for ₹ 20,00,000. This loan is for five years, and the personal loan interest rate is 8% p.a.
Using the personal loan EMI calculator on the lender’s website, he calculated the following amortization schedule:
|Year||Principal Repayment||Interest Payment|
Therefore, Gopal can claim the interest paid in each year of repayment as a deduction under Sec 80 E.
To sum up, career advancement is significantly aided by securing a personal loan for education during crucial years. Furthermore, you can benefit from the most competitive personal loan interest rates and claim their repayment as a deduction under Sec 80 E.
Consequently, you will be able to conserve money on your way to becoming a successful professional. Education is becoming more and more expensive, and for many students, it remains a desire to pursue their education after school. Thus, tax deductions like 80E help facilitate this goal.