In India, there are multiple benefits of education loans in India, for both students and parents. They can protect their savings and avail of tax benefits. Additionally, taking an education loan helps students realise financial responsibility, which is advantageous for both parents and students.
Moreover, availing of student loans avoids the draining of retirement savings of the parents of beneficiaries. Furthermore, parents can use their personal savings to invest in the future of their children. Key examples include investing in mutual funds, creating a contingency fund for unprecedented situations, or building a corpus for a home.
Another essential benefit of student loans is building a strong credit history for students. As this loan is one of the first credits in the kitty of a student, she/they/he can start creating a good CIBIL score by timely loan repayment.
Tax Benefits of Education Loans in India
The Income-tax Act (IT Act) offers tax benefits under section 80E for education loans. These benefits apply solely to the interest amount and not the principal. Tax deductions can be claimed by the individual taking the loan, their spouse, or parents. However, it’s essential not to make tax benefits the primary reason for taking a student loan in 2023. Instead, one should consider the quality of the course and its potential to create better earning opportunities and improve life prospects.
It’s important to note that the tax benefits are available only during the initial assessment year. The assessment year is relevant to the previous year in which loan repayment commenced. Additionally, it is available for the following seven years or until the loan and the interest are fully repaid. If a student chooses a loan term of 10 years or more, the tax exemption period is limited to eight years. However, tax exemption for 8 years is one of India’s most important benefits of education loans.
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