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Borrow and Study

BY: Vivek SHARMA | Category: Finance | Submitted: 2011-02-20 19:15:20
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Article Summary: "The article talks about benefit available under Section 80E of Income Tax Act for educational loans..."

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You had a dream of going for higher studies and somehow could not complete it during your college days. May be there was a financial constraint or your family wanted you to take up a job.
Now things have changed for you. You are employed and have resources to complete your unfulfilled ambition. Should you use your own resources or borrow to study further. You would wonder why should I borrow and study, when you have own resources. The answer is simple and is explained by Section 80E of Income Tax Act. If you go through this Section i.e. 80E you will find it makes sense to borrow and study.

If you borrow and study, you get deduction in respect of payment of loan taken for higher studies under Section 80E. The deduction is available for the interest payment made by you on loan taken for higher study. What is encouraging is that the deduction is available on all kinds of education after Senior Secondary level (You must have passed senior secondary education from a recognized board). The educational loan can also be taken for vocational studies. You need to ensure that you take a loan from a financial institution (i.e. a banking company or notified financial institution) or an approved charitable institution. It is important to note that no deduction is available on payment of principal amount.

The benefit of loan can be explained with an example:

TYPE | Loan 1 | Loan 2
For whose education the loan was taken | Self | Self
Purpose of Loan | Part Time MBA | Part Time Fashion Designing
Amount of Loan | 500000 | 100000
Repayment of principal in a year | 100000 | 20000
Repayment of interest | 50000 | 10000

As per table above, the total tax benefit you would receive is Rs. 120000 under section 80E. This means that you don't have to pay money upfront from your pocket and you don't pay any interest on education loan as the entire interest payment is tax deductible. So what are you waiting for, borrow and upgrade yourself. Please do remember not to borrow beyond your means. After all you will repay the principal amount.

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