I am planning to send my son abroad for higher education. To fund his education fees, I plan to take a bank loan. Please advise if it is a good idea to take a loan. Also, are there any benefits available in income tax laws for a refund of principal and interest?
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D.K. Mahapatra
Reply by Rajiv Bajaj, Chairman & MD, BajajCapital
In our capacity as financial planners, we typically advise against taking loans for purposes other than acquiring a long-term asset, such as a home. This is because loans can have a substantial impact on your financial well-being. However, we understand that sometimes, financing your son’s education may necessitate taking out a bank loan for his fees.
Should you decide to proceed with an education loan, we recommend negotiating with reputable public sector banks to ensure you secure a loan with a reasonable interest rate and a manageable repayment period. This will help alleviate the financial burden associated with your son’s education.
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It’s essential to be aware that you can claim the interest paid on the education loan as a deduction under section 80E of the Income Tax Act. This deduction is available without any upper limit for a maximum period of 8 years. If the education loan extends beyond this timeframe, you can only claim the deduction for a limited period of 8 years.
Additionally, it’s worth noting that if you opt for the new tax regime (which is the default mode of filing Income Tax Returns from the current financial year), you will not be eligible to claim the deduction under section 80E.
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We advise you to carefully weigh the advantages and disadvantages before deciding. Your son’s education is undoubtedly a valuable investment, but it’s essential to assess the long-term financial implications and explore all available options.
