Wednesday, 2 November 2011

Cost of education: Interest subsidy makes it less scary

The cost of education has been going up steadily and becoming increasingly beyond reach for people with limited means. As the government has made it a priority to promote education in India, it has taken certain steps which can take it forward. One such step is allowing rebate of up to Rs1 lakh towards tuition fee paid to recognised educational institutions in India by parents. In addition to tax rebates for tuition fees, the income tax law allows rebates in respect of interest paid on education loans taken for yourself or your relatives.
Besides these indirect benefits, the government has announced a scheme to grant interest subsidies to students of economically weaker sections on loans taken to pursue higher education. It is pertinent to note that the interest subsidy scheme is not available for education in institutions outside India though the benefit of interest deduction under Section 80E is available even for these institutions.
How the scheme works 
Under the scheme, the government bears the cost of interest on the education loan during the moratorium period. The moratorium period for education loan is normally available from the date of disbursement of the loan till one year after the course ends or six months after the person gets the job. So, one really has to pay the interest only for the period beginning one year after completion of the course or six months after starting work in case you are eligible to get the benefit of interest subsidy. However, if anybody abandons the course mid way, he will not be entitled to this subsidy. However, the benefit is not withdrawn if this break in education is due to medical reasons or any other justifiable ground.
In order to qualify for this benefit of interest subsidy, the annual income of the parents /family should not exceed `4.5 lakh per annum. In support of your claim for this income, you will have to produce a certificate in the format prescribed by the specified authority of the state government. These authorities are different for different states. Generally, it is the ‘tehesildar’ who is entrusted with the job. I, however, feel that he does not seem to be a befitting choice for the job.
In my opinion, the proof of income tax returns would have been a better document than the certificate from the ‘tehsildar’, but in rural areas hardly anybody would be filing the returns, hence the ‘tehsildar’ has been entrusted with the job. The annual income to be considered for this purpose may not necessarily be taxable as per income tax laws; this will include agricultural income as well.
The qualifying criterion for availing of this subsidy is economic parameters of annual income of the family/parents only and not others likecaste or religion, which is really commendable. This stress on the single criterion will help a lot of students which are otherwise not eligible for any preferential treatment provided by the government based on caste or religion.
It is noteworthy that there is no limit on the quantum of the loan amount in respect of which this benefit is available.
Types of courses covered
All the professional and technical courses which are conducted by any recognised institution in India are covered under the scheme. Though there is no list of such eligible institutions, the scheme covers all courses approved by the Indian Bankers Association for the purpose of education loans. These are primarily eligible for this interest subsidy scheme.
For which period are the benefits available? 
The benefits of interest subsidy scheme are available in respect of all the education loans taken during 2009-2010 and subsequent years. This benefit can also be claimed in respect of instalments disbursed during the above period, though the loan was sanctioned and partly disbursed in earlier years as well.
What is the procedure to avail of this subsidy? 
The person who has either taken a loan during the year 2009-10 or has taken an instalment of such a loan from any scheduled bank during the period 2009-10is eligible to avail the interest subsidy.
Though the scheme is managed by Canara Bank, any person who has taken an education loan from any other bank can claim the interest subsidy. The eligible person has to make an application with the branch of the bank from where he has taken the loan. The borrower has to enter into an agreement with the lender bank branch and the format of the same can be availed at the branch from which the loan is sanctioned.
It is not necessary that you should indicate that you are eligible for this subsidy while applying for the education loan. The application can be made after the year end in respect of the claim to be made for the preceding year. However, you need to provide the necessary documents while applying for the subsidy under the scheme.
The last date for making the claim in respect of the accounting year 2010-11 was August 31, 2011, but many states have not specified the authority for the purpose of certifying the income proof. The lethargy of state governments defeats the very noble purpose of putting such schemes in place. The details of the authorities approved for certification of the income are available on the link
From the list available on the above link, it appears that out of 35 states and union territories, 12 have yet to specify the authority for certifying the income. Since the benefit can be claimed only by the due date, I will urge the government to be proactive and specify the authority for certifying the income for these subsidy aspirants.
I hope many of our readers who fall in the category will benefit. Those who don’t can certainly spread the good word and contribute to this noble cause initiated by the government.

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