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Ask Mint Money | Interest paid on education loan can be claimed for tax benefits

Ask Mint Money | Interest paid on education loan can be claimed for tax benefits
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First Published: Thu, Mar 31 2011. 10 38 PM IST
Updated: Thu, Mar 31 2011. 10 38 PM IST
My net income is Rs68,000 per month. I pay an equated monthly instalment of Rs30,000 for my education loan. My monthly expenses are around Rs15,000. I spend Rs2,500 per month on my parents. I pay Rs7,000 per annum for a life insurance policy, Rs2,800 per annum for a term insurance and deposit Rs1,000 per month in post office recurring deposit. I have equity shares worth Rs11,000. I plan to get married by end of this year and don’t have any other liability except the loan. I want to pay off the loan at the earliest which has Rs15 lakh outstanding with six years to go. What investments should I opt for?
—Sumesh Gopurathingal
You can currently save around Rs18,000-20,000 per month. As of now continue with the education loan. Don’t consider swapping the loan with any other loan as the benefits offered by an education loan are much more than any other loan. As per the Income-tax Act, it gives benefit on the interest paid. As per section 80E, the interest which you pay on the education loan is a deductible expense from your taxable income. This will also increase your net take-home pay. As far as savings are concerned, you may need to break some funds for your marriage. Consider investing in liquid short-term funds. Also consider equity investment. You can opt for mutual funds through systematic investment plans.
I work for a private firm and my employer contributes to my provident fund (PF) and pension fund. The PF is managed by the firm’s trust. Can I open a National Pension System (NPS) account? Is it possible to transfer my pension account to the NPS account? I exhaust my Rs1 lakh limit with PF and Public Provident Fund (PPF) savings.
—Shweta Gupta
There is no restriction on opening an NPS account even if you have an EPF account with your employer as well as a PPF account. As these accounts are not linked with each other, you cannot transfer your pension or PF account maintained either under trust or statutory authority to the NPS account. As you are already exhausting your tax saving limit under section 80C, the only other tax saving benefit is available under section 80CCF where you can invest up to Rs20,000 in specified infrastructure bonds. In addition to that, medical insurance premium up to Rs15,000 is allowed as a deduction under section 80D.
Also look at investment options which are beyond your provident funds. While these investments are good and recommended, liquidity is a concern. You also have to make sure that the same at least covers the inflation rate. Hence consider taking some exposure to equity as it is the only instrument which can take inflation head on. One advantage of doing NPS is you can participate in equity.
Queries and views at mintmoney@livemint.com
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First Published: Thu, Mar 31 2011. 10 38 PM IST