The earlier version of the deduction allowed to deduct the repayment of principal along with the interest paid thereon from the taxable income of the assessee (of course the pricipal & interest of Education Loan only). This deduction was Rs. 40,000 per year for 7 consecutive years. But now the deduction has been limited to interest component only & the word pricipal has been omitted from the section.
I studied the impact of this change, taking some hypothetical figues - Loan of Rs. 4,00,000 & interest @10%p.a. (reducing balance). So for 7 years repayment, the EMI comes to approx. Rs. 6,640. Using this the deduction earlier would have been Rs. 2,80,000 (spread across seven years) , but now the deduction will be limited to Rs. 1,57,800 only!!!!! This will lead to an additional (marginal) tax burden of approx Rs. 5,300 per year (avegare - @30% - with no surcharge)
What the hell is this supposed to mean??? Mr. Chidambaram very categorically specified in his speech that deduction on education loan stays as is it (though i expected him to raise the amount).... but then when you read the fineprints, you find such gross stupidity & back stabbing from the ministry!!! This clearly potrays the lack of transparency showed by the FM during his speech....
So Mr. Chidambaram - what do we do with our education loans, the effect of which we calculated assuming that the deduction will stay & thus taking loan is more beneficial than shelling out money from other resources???
