Your Queries (Loans): You can avail tax deduction for interest paid on education loan

There are pros and cons of both options. In favour of the loan are the facts that interest rates are low currently and you will be able to get a cheap loan.

Having to pay for his higher education will instil a sense of responsibility in your child in addition to learning the value of money
Having to pay for his higher education will instil a sense of responsibility in your child in addition to learning the value of money

By Chaitali Dutta

My son wants to take an education loan to study abroad. I am not in favour of it and would rather sell a property and fund his education expenses. What would be your advice and how are interest rates calculated and repayments to be done?
—Raj Kumar Verma
There are pros and cons of both options. In favour of the loan are the facts that interest rates are low currently and you will be able to get a cheap loan. Having to pay for his higher education will instil a sense of responsibility in your child in addition to learning the value of money. The interest paid on the education loan is also eligible for deduction from the taxable income, which you may avail of, in case you pay the interest before the EMI starts. The con here would be that it comes at a cost i.e. the interest you have to pay on the loan. In case you sell the property, you are converting an asset into an investment for the future of your child. There is no interest involved here. However, do look at the opportunity loss which would be the rental receipts on that house. You may also incur capital gains on the sale, where tax is applicable. Currently, real estate is going through a soft period in terms of rates. You may have to wait for an appropriate sale price and an appropriate party to seal the deal.

My housing loan has been disbursed and I have selected the EMI date as 15th of every month. Had I opted for the 7th day of every month, would my interest outgo reduce? Also, can I change the date after a few months?
—Madan Kanti
For the periodic monthly interest, this date is not significant as you must pay interest for the immediately preceding 30 or 31 days. In case you are looking for a balloon payment, then the earlier in the month the better. Yes, it is possible to change the date of the EMI after consultations with your banker.

Is there any prepayment penalty for pre-paying gold and education loan?
—Sangeeta Garg
In general, there are no prepayment penalties for such loans. However, it may be advisable to check your arrangement letter for such a restrictive clause, if any. Sometimes, the financial institutions in their enthusiasm to book the business, may not mention such clauses in detail.

The writer is founder, AZUKE
Personal Finance Advisory (www.azukefinance.com).
Send your queries to fepersonalfinance@expressindia.com

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