NEW DELHI: Student loans are useful in planning for an academic future and are a viable alternative to saving.
“What makes student loans particularly attractive is that unlike home loans or personal loans, student loans have a moratorium 6 to 12 months longer than the course duration for which you have taken out the loan. During the moratorium, the bank expects no Equivalent monthly payments (EMI) or repayments to come. This means you have plenty of time to finish your education and start working before you start paying off your loan, ”said Adhil Shetty, CEO of Bankbazaar.com.
The tax advantages on student loans also make them attractive. You can claim tax deductions on student loans under Section 80E of the Income Tax Act. However, some things should be kept in mind before claiming any benefits.
First, while there is no upper limit to the amount you can claim, you can claim tax benefits only on the interest paid on the student loan, not on the principal.
Second, only the person who avails the loan can claim deductions. So if you take out a student loan for your daughter and pay it off, you can claim the tax deduction. But if your daughter repays the loan with her own income, neither you nor she can claim deductions. This is because the loan is in your name, but the repayment is not made on your taxable income.
Third, not all student loans are eligible for tax exemptions. “Article 80E specifies that only loans from specified financial institutions, including banks and“ any other financial institution that the central government may, by notification to the Official Gazette, specify in that name ”are eligible for exemptions. If you are considering taking a loan from a non-bank financial institution (NBFC), you need to make sure that your loan provider is included in this list, ”said Shetty.
In short, a student loan gives you the financial means and flexibility to undertake higher education and pay it consistently over a longer period. At the same time, it gives you tax breaks that make refunds less expensive.
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