Education Loan Tax Benefit
15 May 2019
All You Need to Know About Education Loan Tax Benefits under Section 80E of the Income Tax Act
Investing in a sound education has always been considered a worthy investment. A good degree can set you on the path of financial independence. But the costs associated with achieving a higher education degree cannot be ignored. As the cost of education continues to sky-rocket, students have little choice but to take out an education loan. Thankfully, the government offers some respite on education loans in the form of education loan tax benefits. Here’s all you need to know.
Section 80E of the Income Tax Act of 1961
Students intending to take a loan for higher studies, also known as an education loan, can avail tax deductions under Section 80E of the Income Tax Act of 1961. This section of the IT Act specifically caters to education loans. Students may avail education loan tax exemptions for pursuing higher education in India or abroad.
Students who’ve opted to go abroad for higher education often incur higher expenses as compared to those pursuing higher degrees in India. Apart from paying high tuition fees, they also have to incur costs such as boarding or dormitory charges, travel costs, purchasing study materials and equipment (engineering boards, laptops, etc.) Keeping all these expenses in mind, the government introduced Section 80E of the IT Act. Under this section, students can avail some relief in repaying the interest component of their education loan.
What is covered under Section 80E?
Under Section 80E of the IT Act, students can avail income tax benefit on education loan, when they become taxpayers. The tax benefit is extended on the interest portion of their education loan under Section 80E. The 80E specific deduction does not apply to the principal loan amount. While calculating the annual taxable income, students can deduct the entire amount paid as interest, while repaying the loan, i.e. the interest amount paid against the education loan is not taxed. You can avail deductions on the entire interest component of the loan.
Terms and conditions under Section 80E
To avail education loan deduction in income tax under Section 80E, you need to consider the below terms and conditions:
You can avail tax deductions on education loans taken on behalf of your children (biological and adopted) or your spouse.
Under 80E, you may also avail the deduction if you are the legal guardian of the student.
You can avail 80E deductions only if you’ve applied for the loan from a recognised financial institution like a bank or an NBFC, or a charitable institution.
You may not avail 80E deductions if an employer or a relative sanctioned the loan.
80E deductions are applicable only for individuals availing the loan and not Hindu Undivided Families (HUFs). Companies or firms can also not avail 80E deductions.
Difference Between Credit Card & Debit Card
4 Differences between Credit Card and Debit Card
When you open a bank account, you are provided with a cheque book, a passbook and an ATM-cum-debit card, also known simply as a debit card. After you’ve held your account with the bank for some time, the bank may even offer you a credit card. However, many people are often confused about the difference between debit and credit card and often assume them to be the same. So, we’ve listed the differences to help you understand. Let’s start with understanding the meaning of each card.
What is a debit card?
A debit card is a card that is linked with your savings or current bank account. When you open your bank account, the bank issues a card that you can use at ATMs and PoS terminals to withdraw money or pay for your expenses, respectively. The sums are automatically and instantly debited or deducted from your debit card. Banks provide free debit cards and charge a small annual maintenance fee.
What is a credit card?
A credit card is another type of bank card through which you can borrow money for a bank or financial institution. The issuer provides you with a line of credit, also known as a credit limit. This limit is determined based on your income and can be increased from time to time. The issuer bills you for your credit card expenses, and you need to pay them off by a stipulated date. If you fail to repay the sums borrower on credit, the issuer levies an interest rate on the money borrowed.
Credit card vs debit card
Having explained the meanings of credit and debit cards, let’s find out what is the difference between credit card and debit card. They are as under:
Bill vs account statement
People who have a credit card are sent a bill for the expenses incurred on the card each month. The issuer sends a bill explaining the minimum and total sums due. In the case of debit cards, the account holder can directly access the savings account to see the expenses incurred.
Linking the card
The debit card is linked to your savings account, whereas the credit card is linked to the financial organisation or issuing bank offering the credit facility.
Credit vs spending limit
Typically, credit card companies provide a credit limit, and you cannot borrow sums exceeding the credit limit. In the case of debit cards, banks issue daily cash withdrawal as well as PoS spending limits.
The credit card issuer levies an interest rate if one is unable to repay the amounts borrowed on time. However, in the case of debit cards, money is not borrowed on credit, so no interest is charged.
Apart from the points mentioned above, a significant aspect of difference between debit and credit card is that debit cards are provided free of charge by the bank. In contrast, credit cards may be availed through an application or by invitation only.
Home Loans for Women (Benefits)
All of us dream of become homeowners. It is a way of ensuring lifelong financial security; the kind that does not come from living in a rented home. But buying a home is a complicated process. Whether it is years of savings to be given as down payment, or finding the right locality to invest in; the process of buying a home is elaborate. And since property investments take a huge chunk of savings, most of us rely on home loans, which often last for over 2 decades. However, women borrowers have it a bit easy thanks to government home loan schemes for women. Let’s find out how women can benefit from home loans designed for them.
Reduced Rates of Interest
If you’ve ever purchased anything on a loan, you will know that even a point’s difference in interest rates can amount to a lot of savings. If your interest rate on the loan is high, you always end up paying more. In such a case, even a slight reduction in interest rates can make a lot of difference. This also affects your monthly EMI which is further reduced. Under the government scheme, home loan interest rates for women are reduced by 0.05% by most banks in the country. While this may seem like a small percentile, consider the following example:
Let’s say you take out a home loan of ₹50,00,000 form a bank for a tenure of 20 years. The bank offers an interest rate of 8.65% to its male borrowers and 8.60% to its female borrowers. In this case, the interest outflow for men is ₹55,28,083, but due to the reduced 0.05%, the interest outflow for women is ₹54,89,953. As a result, the savings in interest outflow for women borrowers’ accounts for ₹38,130.
Reduced Stamp Duty Charges
Stamp duty forms a part of the property cost, and the reduced interest rate can make a huge difference in reducing stamp duty charges too. Most lenders provide 80%-90% finance on home loans, with a set percentage of money paid in stamp duty char.ges. But as per the home loan subsidy for women, a concession of 1%-2% is typically applicable on stamp duty charges. If a woman purchases a property worth ₹50,00,000, she can save ₹50,000 to ₹1,00,000 on stamp duty charges alone.
Both, male and female borrowers are eligible for tax deduction on home loan repayments. The maximum tax deduction permitted in principal and interest repayments is ₹1,50,000 and ₹2,00,000 respectively. If a woman borrower applies for a home loan along with her husband, she can receive tax deduction in equal measures.
Longer Repayment Tenures
While male borrowers are typically provided with loan repayment tenures of 20 years and a maximum age of 65 years to repay the loan, whichever is early; home loans for women are offered for tenures of up to 30 years or up to 70 years of age of the borrower, whichever is early.
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