Loans That Make You Eligible For A Tax Benefit

5 MinsSeptember 22, 2018

To fulfil our dreams we often plan finances, but at times, we also consider availing of a loan.

Home loan, for instance, enables us to accomplish our dream of buying a house (to live in or as an investment). Likewise, an education loan to pursue higher studies empowers us to reach new heights in our career and live a respectable life. And what’s common is that these loans also provide a tax benefit under the respective provisions of the Income Tax Act, 1961.

Education Loan

In a knowledge economy that we live in today, education plays a pivotal role. Education is a personal investment, and you must pursue it.

"An investment in knowledge pays the best interest." — Benjamin Franklin

Today, education loan is available for career-oriented courses like medicine, engineering, management, etc. either at a graduate or post-graduate level in prime institutes in India and abroad.

The loan covers tuition fees, examination fees, library subscription, cost of books, needed lab tools/equipment, laptop/computer, hostel charges (if any), and so on.

Axis Bank India offers education loans at attractive interest rates for a loan amount ranging from Rs 50,000 to Rs 75 lakh.

Students can directly apply for an education loan. However, their parent(s) or guardian will be treated as co-applicants, and their role will be akin to a primary debtor (a person who owes money).

To know the eligibility criteria and documents required for an education loan, click here.

What is the tax benefit?

When you avail an education loan, the interest paid (which is a component of your EMI) on the education loan is allowed as a deduction under Section 80E of the Income Tax Act, 1961. The deduction is available for a maximum of 8 years or till the interest is paid, whichever is earlier. You can click here on our tax calculator to see the amount of tax you can save.

A few more important points to note:

  • The purpose of the loan: The loan should be taken to pursue higher education. It does not matter whether the education loan is taken for higher studies within India or abroad.
  • Institutions from where the education loan should be taken: The deduction can be claimed only if the education loan has been taken from a bank, approved financial institution, or an approved charitable institution.
  • Who can claim this deduction: Only an individual can claim this deduction. It is not available to a Hindu Undivided Family (HUF) or any other kind of taxpayer. Further, the loan should be taken for the higher education of self, spouse, children, or the student for whom the individual is a legal guardian. Thus, parents can easily claim this deduction for the loan taken for the higher studies of their children.
  • The deduction amount: Only the total interest paid (which is part of the EMI) on education loan during the financial year is allowed as a deduction. There is no maximum limit on the amount that is allowed as deduction. However, there isn’t a tax benefit on the repayment of the principal amount (which is the second part of the EMI).
  • Period of deduction: The deduction is available from the year you start paying the interest on the education loan, and the seven immediately succeeding financial years or until the interest is paid in full, whichever is earlier.

So, do consider an education loan; it can be an efficient way to finance your or your children’s education.

Home Loan

Owning a house, besides a sense of pride, provides a sense of financial security. For this reason, it is one of the vital financial goals. To achieve this goal, today you have access to a home loan.

Availing a home loan can seem like a daunting process. But with Axis Bank, it’s affable and reassuring. The entire application process is simple and takes about up to 15 days; right from the time you meet with an Axis Bank loan executive until the loan is disbursed. You can apply for a home loan in the comfort of your office or wherever you are.

To know the eligibility and documentation for a home loan, click here.

What is the tax benefit?

The principal portion of the home loan EMI is eligible for a deduction under Section 80C of the Income-tax Act, 1961, subject to a maximum limit of Rs 1.50 lakh. Stamp duty and registration charges are also eligible for deductions under Section 80C

If you are a “first-time home buyer”, you can even claim an additional deduction upto Rs 50,000 under Section 80EE

Deduction under Section 80EE was reintroduced in Union Budget 2016, but the additional tax benefit exemption can be availed after first exhausting the limit under Section 24(b) for the interest portion.

Section 24(b) of the Income-tax Act, 1961, allows a deduction for the interest component of the home loan EMI. For a self-occupied property, the deduction under Section 24(b) is Rs 2.00 lakh per annum. And in case the house is let-out on rent, i.e. it is a Let-Out Property (LOP), the actual interest payable is eligible for deduction under Section 24(b), thereby not being subject to any maximum limit. This applies even in the case of where you have two home loans for two different properties, where one is self-occupied and the other is let out on rent.

Similarly, if you have taken a loan for the purpose of reconstructing, repairing or renewing the property, the amount of deduction under Section 24(b), you are eligible for will be restricted to Rs 30,000, irrespective of whether you want to stay in it or let it out on rent.

If the housing loan is availed by you along with a co-applicant, each of you are eligible to claim a deduction on the interest paid up to Rs.2lakh each. Tax can be deducted on the principal paid as well for an amount up to to Rs.1.5 lakhs each. However, all the applicants should also be co-owners of the property in order to claim this deduction

So, even if you have the money to buy your dream home or even renovating your current house, given the tax benefit, it would be sensible to opt for a home loan.

Happy Banking!

Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm known for offering unbiased and honest opinion on investing. Axis bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.