As a potential education loan applicant, this story could be a ray of hope for you. As loan applicants we all may know so many reasons of why we could be denied any loan, for any purpose, whatsoever. But do you know that a public-sector bank (specifically) can’t deny you a study loan. According to a newspaper article I read the other day, a student can call the Finance Minister or the officials of the department.

If your bank says that you can’t get a loan because of the place of your residence or your age, call the Ministry. They can’t insist on the institute being within the limits of the branch.

Same is the case if the bank tells you that your loan guarantor’s residence has to be the same as yours.

All this is good news for you if you want to pursue higher studies, even if you are, say, 45 years old (not an age when typically one takes up an educational endeavor). This is true for study in any institute in India. There just one pre-condition. If your institute is not approved by a statutory body such as UGC, AICTE, the central government or a state government, you will not be so lucky.

Loans are generally assumed to be a risky liability as the generally individuals avail loans more than what they can bear. A loan, by itself, is never risky; it is only by the improper utilization and improper budgeting, the problem starts. An individual perhaps forgets that the way he wishes to earn interest on his investments, he also has to pay interest on his liabilities.

Loans availed can be judiciously used also to save taxes in an efficient manner. Some of the tools are:

Interest portion of home loan
The first and the foremost tax sop is the interest amount that you pay on housing loans. The interest on housing loans in the initial years is the major component of the EMI you pay. The interest may exceed the rental income from house property, resulting in loss from house property.

The interest payable (accrued and not paid) of a home loan is eligible for deduction under section 24(b) of the income tax act as “interest on borrowed capital”. The interest deduction is Rs 1,50,000 (if the loan/property acquired after 01.04.1999) for a self occupied property. For let out property/deemed let out property, the actual accrued interest is deductible without any limits.

Principal portion of home loan
The principal portion of a home loan is eligible for deduction under section 80C of the income tax act. The criteria being, the assesee has to obtain a loan from an eligible financial institution/bank and the proceeds has to be used for the construction/purchase of a house property, which is subject to income from house properties. The maximum amount of deduction is Rs 1,00,000 under section 80C. But the deduction will be taxable in case the property is sold within 5 years from the date of construction/purchase.

• The house property shall be registered in the name of the person, who intends to claim deduction towards interest and installment.
• In the case of working couples having substantial taxable incomes, it may be worthwhile to register the housing property in the joint names and take separate housing loans to claim deduction of interest and installments.
• The EMIs may be planned in such a way that the payments towards principal part of the loan do not exceed the limits available u/s 80C.

Interest portion of education loans
Section 80E of the income tax act provides for deduction in respect of repayment of the loan taken for higher studies. For the deduction, the individual should take a loan from a financial institution or any approved charitable institution. Secondly, the loan should be taken for higher education and for the assessee himself. However, higher education means full time course for graduate or post-graduate courses in select fields. The amount eligible for deduction is the entire interest amount. The deduction is available for eight assessment years starting from the assessment year in which the assessee starts paying the interest on loan, or until the interest is repaid in full, whichever is earlier.

While individuals lose sleep over paying the EMI’s after availing a loan, seldom they know that the loan can be used as an effective tool to reduce tax.

Considering a hypothetical example,

Total principal paid during the year – Rs 3,00,000
Total interest paid during the year – Rs 1,70,000
Interest on education loan – Rs 30,000

The total maximum deduction available will be Rs 2,80,000. Assuming the assessee is taxed at the maximum marginal rate i.e. 33.99%, a tax outflow of Rs 95,170 is saved.

Thus, loans can do more good than bas if utilized judiciously. Living without loans is tough, so utilize it effectively while you can!

The author is a Certified Financial Planner, working as Senior Manager with Mumbai-based SRE Financial Planners.

College fees - two words that can strike terror in the heart of any parent. Today students do not have the means (parental or otherwise) to fund either tuition fees, course materials, or general living expenses, and find themselves having to apply for education loans. The loan includes not only tuition or college fees but also other incidental expenses for pursuing such studies like hostel charges, transport charges etc.

Education loans are available with two interest rate options: fixed and floating. Most banks offer only the floating rate option. In this case, when interest rates move higher you end up paying a higher amount of EMI, or else, the tenure of your loan gets extended. The education loan providers generally require a guarantor who can take the responsibility to repay the loan, in case the student fails to repay the whole loan amount.

Education loan repayment is deductible under Section 80E of the Income Tax Act. The deduction will apply only on loans taken for higher education. The educational loan should be for either an individual’s or his/her relative’s higher studies. Higher education here means full-time studies for any graduate or post-graduate course in medicine, engineering, or management, or post-graduate courses in applied sciences or pure sciences, including mathematics and statistics.

Now for some repayment tips:

Make loan repayments from income chargeable to income tax. If repayments are made from income exempted from income tax, it will not qualify for deduction. And remember, the amount eligible for deduction is interest component of the loan repayment. This deduction is available for a maximum period of eight assessment years beginning in the year in which the interest is first paid.

The main thing when considering applying for education loans is to make sure that you get the best deal possible for your particular needs. It is worth spending some time researching. It may also be worth seeking the advice of a professional in the field. A little time spent in this way can save you a great deal of money in the long run. Education loans options may seem viable but one should not lose sight of the fact that there is a real danger of falling into a debt trap because you end up committing your future earnings towards your loan repayment, thus increasing expenses every month.

The author is a Certified Financial Planner and is Vice-President, Personal Finance at Apnaloan.com Services (P) Limited.