Have you ever noticed how Indian students light up when the topic of studying abroad comes up? Yet, when the conversation turns to finances, their excitement often dims. That is where the parents step in by securing a loan, or sometimes the ambitious students themselves seek out options for financing their overseas education dreams.
But there is something many people may not know. That is, besides covering tuition fees and even your air tickets, foreign education loan also offers some major tax benefits. Yes, you heard it right! There are tax advantages associated with taking out an overseas education loan. So in this article, let us answer some commonly asked questions about these tax benefits that go on in the minds of Indian students that everyone should know.
FAQs on Tax Benefits on Overseas Education Loan
The below listed are the commonly asked questions on tax benefits on overseas education loans,
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What tax benefits are available for taking study abroad loans?
Under section 80E of the Income Tax Act of 1967, the interest paid on an overseas education loan qualifies for tax deductions. This means that the interest amount can be deducted from your total income, resulting in potential tax savings. What’s more is both the borrower and the co-borrower can claim this benefit, making it a win-win situation for those pursuing education abroad.
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What are the eligibility criteria to avail tax benefits?
The following are the eligibility criteria to claim tax benefits on your overseas education loan
- Only the interest amount is eligible for tax deductions
- The benefit is available for whoever repays the loan amount
- The borrower cannot claim this benefit beyond 8 years
- These benefits are only available if you take a loan from an approved financial institution from Reserve Bank of India.
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On what courses can you avail of these tax benefits?
The applicant can avail of these tax benefits on all levels of higher studies whether be bachelor, master, Ph.d, or even diploma courses as long as your university and program are recognized by the authorities.
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Which type of financial institutions offer these tax benefits on overseas education loans?
Whether you secure a loan from a Nationalized bank, Private bank, Non-Banking Financial Institution (NBFC), or an International lender, you can still enjoy the tax benefits. However, it is essential to ensure that the lender is a regulated entity as per the guidelines of the Reserve Bank of India.
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Which bank is best for education loan for abroad based on tax benefits?
Determining the best bank for an education loan depends on various factors, including whether you opt for a secured or unsecured loan. Each bank excels in different aspects; some offer favorable moratorium periods, while others provide lower interest rates or some higher loan amounts etc. Here are some of the top loan providers in India,
- Nationalized Banks: Bank of Baroda, Bank of India, Punjab National Bank, State Bank of India etc.
- Private Banks: Axis Bank, ICICI Bank, IDFC First Bank, Yes Bank etc.
- NBFCs: Auxilo, Avanse, HDFC Credila, InCred, Tata Capital etc.
- International Lenders: MPower Finance, Prodigy Finance etc.
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When can the borrower start to claim the tax benefits?
The borrower becomes eligible to claim tax benefits from the year they start paying interest on the education loan. If the interest payments start in the same fiscal year as the borrowing, the borrower can claim deductions for the interest payments made on the loan.
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What documents do I need to avail tax benefits on overseas education loans?
To claim tax benefits, the borrower needs to have documents such as the loan agreement, interest certificates from the lender, and proof of repayment. These documents serve as evidence of the interest paid on the education loan and are required while filing your tax returns.
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What if the overseas education loan is shifted to another lender?
If you transfer your overseas education loan from one lender to another, like from Bank of Baroda to Axis Bank, you’ll make EMI payments to the new lender. You can still claim tax deductions on the interest paid, provided you continue paying regular EMIs. The terms and conditions remain consistent with your previous bank.
In conclusion, having an idea of the tax benefits of overseas education loans is essential for Indian students. Having been exposed to these benefits, students and parents can make informed financial decisions on factors like the lowest interest rate for education loan abroad, the best banks with higher disbursement amounts, etc. For a detailed understanding of the tax benefits, you should consult with experts on overseas education loans.
