Interest Certificate for Education Loan: Meaning, Use, Process

Interest Certificate for Education Loan
Home » Education Loan » Interest Certificate for Education Loan: Meaning, Use, Process

Studying abroad sometimes comes with a higher cost and not everyone can afford it without taking an education loan. However, education loan also provides a lot of benefits to students. While repaying the loan you can claim tax benefits on the interest paid over the loan. 

However, in order to claim an income tax rebate on education loan you need to show the breakup for the amount paid against the loan. Interest certificates for education loans are issued by the bank and they contain all the details and the breakup of the amount paid. Check all the major details of interest certificates and know how it is issued.

What is an Interest Certificate for an Education Loan?

An interest certificate, also known as an interest statement or interest repayment statement, is a document provided by banks or other lending institutions to borrowers. It outlines the accrued interest on the education loan over a specific period. This document serves as a comprehensive record, detailing the interest component of loan repayment. Whenever you are filing tax deductions, you need to submit a copy of the interest certificate for education loans.

Also Read: Want to know more about tax benefits? Check here some of the common FAQs on Tax Benefits on Education Loan

Importance of Interest Certificates for Education Loan

Interest certificates play a major role in financial planning for borrowers. By stating the accrued interest, these statements provide borrowers with a clear understanding of their repayment obligations. This enables them to make effective strategies for loan repayment, budgeting, and managing finances efficiently. Check some major importance of education loan interest certificates below.

Tax Implications

Interest paid on education loans is eligible for tax deduction under Section 80E of the Income Tax Act, 1961 (India). Interest certificates for education loans provide borrowers with the requisite information for claiming tax benefits. These documents facilitate compliance with tax regulations, ensuring that borrowers capitalise on available deductions while adhering to legal obligations. Tax exemption from education loans will be provided only after the verification of the interest certificate.

Loan Repayment Monitoring

Interest certificates serve as an important tool for monitoring loan repayment progress. By understanding the interest component, you will be able to track their repayment journey and evaluate the repayment strategy. This transparency brings accountability and empowers borrowers to stay on course with their repayment obligations.

Documentation for Future Reference 

Interest certificates serve as essential documentation for borrowers and provide a comprehensive record of interest payments made during the repayment period. These documents are valuable for future reference, facilitating inquiries, audits, or any other financial transactions related to the education loan.

Also Read: Check here for details about student loan tax deduction

Components of an Interest Certificate for Education Loan

Interest certificate contains a lot of essential information such as net due loan amount, interest and principal amount paid over a specific period, remaining EMIs and interest amount etc. Check all the components of the education loan interest certificate below:

Borrower Information

This section contains details of the borrower like their name, address, contact information, and loan account number. It serves as a means of identification and ensures accurate documentation. Always check all the information properly while receiving the interest rate and if you find any discrepancy, report the same to the bank or lending institution immediately.

Loan Details

Interest certificates for education loans specify key details related to the education loan, such as the principal amount disbursed, the education loan interest rate applicable, the tenure of the loan, and the repayment schedule. These details provide a comprehensive overview of the loan terms and facilitate a better understanding for borrowers.

Interest Calculation

The interest certificate shows the accrued interest on the education loan over a specific period, usually a financial year. It provides a breakdown of the interest amount, detailing the amount accrued each month and cumulatively over the specified period. You can easily understand the exact amount of interest which you have paid in a specific period.

Tax Deduction Information

For borrowers availing tax benefits under Section 80E of the Income Tax Act, the interest certificate provides essential information for claiming deductions. It specifies the total interest paid during the financial year. Without an interest certificate, it becomes very difficult to claim tax benefits.

FAQs on Interest Certificates for Education Loan

What is an interest certificate for an education loan, and why is it important?

An interest certificate is a document provided by banks or lending institutions to borrowers, detailing the accrued interest on the education loan over a specific period. It is essential because it serves as a comprehensive record of interest payments, aids in financial planning, and tax compliance by providing necessary information for claiming deductions, and enables borrowers to monitor their loan repayment progress effectively.

How can I obtain an interest certificate for my education loan?

Banks or lending institutions usually provide interest certificates to borrowers automatically at the end of each financial year. However, if you haven’t received it, you can request one from your lender through their customer service channels, such as phone, email, or online banking portals.

What information does an interest certificate contain?

Interest certificates include borrower information (name, address, loan account number), loan details (principal amount, interest rate, tenure), interest calculation breakdown (monthly and cumulative interest accrued), and tax deduction information (total interest paid during the financial year for tax benefits under Section 80E of the Income Tax Act).

Is the interest mentioned in the certificate the only amount I need to repay each month?

No, the interest mentioned in the certificate represents the accrued interest on your education loan over a specific period. In addition to the interest, borrowers are required to repay a portion of the principal amount borrowed each month as per the repayment schedule outlined in the loan agreement. The total monthly payment usually consists of both principal and interest components.

How can I use the information provided in the interest certificate for tax purposes?

The interest certificate shows essential information for claiming tax deductions on the interest paid towards your education loan under Section 80E of the Income Tax Act. To avail this benefit, you can use the total interest paid during the financial year as specified in the certificate while filing your income tax return.

Education loan interest certificates offer borrowers major insights into their repayment obligations and facilitate efficient financial management. By providing a comprehensive record of interest payments and facilitating tax compliance, these documents empower borrowers to understand loan repayment with confidence and clarity.

To know more about education loans, the best bank accounts for students, forex and banking experience for global students or international money transfers, reach out to our experts at 1800572126 to help ease your study abroad experience.

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About Shekhar Suman

Shekhar is a versatile writer with a passion for sharing knowledge and creativity. With expertise in crafting informative blogs on study abroad and finance, Shekhar helps readers navigate the complexities of education and financial planning. Most of his writings blend the practicality of finance and the beauty of language, making a meaningful impact in both spheres. Beyond his professional pursuits, he finds solace in the writing Shayari.

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