The costs of studying in a foreign university have exponentially increased over the past few years. Along with the tuition fees, expenses like the cost of accommodation, and transport can massively reduce the savings of an individual.
The rise in costs has led to an increasing number of individuals to avail an education loan against property to fund such immense expenses. However, it can create a massive financial burden on an individual as the amount required is comparatively high. The Government of India has introduced a few tax benefits on such credits to provide a bit of relief for individuals from such debt obligations. Individuals can claim tax benefits under section 80E of the Income Tax Act.
Things to Check Before Avail Tax Benefits on your Loan Against Property:
Here are a few points to keep in mind before you avail tax benefits on your loan against property for education.
- A Tax Deduction Is Applicable Only On The Interest Part
The nature of tax deductions in case of loans against property for education differs from the tax benefits offered by home loans. Unlike home loans, borrowers can claim tax benefits only on the interest part of such credits. However, the lack of tax deduction on the principal component is compensated as there is no cap on the interest amount that can be claimed as a deduction.
- A Deduction Applies Only To The Interest Part Paid Within 8 Years Of Commencement
The tenor in case of a loan against property for education can range up to 15 years. However, the period of tax deduction comes with a cap of 8 years. According to Section 80E, borrowers are only eligible to claim a tax deduction on the interest amount they pay within 8 years from the commencement of the repayment period.
Suppose a borrower repays a loan within 10 years, then tax deduction can be claimed for the interest part paid during the first 8 years.
- A Deduction Is Applicable On Loans To Pursue Higher Education In India Or Abroad
According to Section 80E, tax deductions are applicable on loans which are taken to pursue higher education. The section defines higher education as any full-time course that an individual enrols in after passing the senior secondary examination or any of its equivalents.
However, it is to be noted that the individuals need to pass from any Government recognised boards, universities or institutions.
Individuals can also claim tax benefits if they decide to pursue any vocational training courses by taking an education loan in India.
Along with availing tax benefits under Section 80E, borrowers should keep the following tips in mind when they apply for a loan against property for education.
- Choose Your Loan Amount Wisely
Financial institutions offer a loan amount as high as up to 75% of the collateral value. It can be used to fund any of the expenses, including tuition fees, accommodation costs, etc. However, individuals should wisely choose the loan amount and avoid borrowing more than they need. It will create an unnecessary financial burden on them, and that can even lead to defaulting. Also, borrowers should check the education loan details properly to know that if they are entitled- to avail a top up amount if they require.
- Determine The Ideal Loan Tenure
The tenure is a vital cost determinant in case of a loan against property for education. As it is a type of secured loan, it usually comes with higher tenure than other financial products. However, that can lead to a massive increase in the interest part of a loan, On the other hand, a short tenure may reduce the long term cost of loan, but it can significantly increase the EMI amount.
Borrowers should develop a repayment strategy according to their financial capability and choose a lender that offers flexible tenure to suit that.
Bajaj Finserv is one such NBFC that offers an extensive range of loan tenure ranging from 2-20 years along with a wide range of other benefits.
They also provide pre-approved offers on such credits to make the process faster and straight-forward. Pre-approved offers are valid on several other financial products and services including secured home loans and even on unsecured business loans and personal loans.
An education loan is helping a lot of young students to fulfil their dreams owing to its wide range of benefits. Use education loan calculator to calculate the EMI amount you have to pay per month or year. You only need to fill the details of loan amount, tenure and rate of interest you get the EMI amount. However, individuals should be aware of the tax deductions to reduce their debt burden.