Should I invest or repay my loan if I have spare money?
There is a tax benefit that you can claim under Section 80E when repaying the education loan
I started working in 2015, and still have my education loan outstanding of about Rs 7 lakh. While I am repaying the loan with Rs 25,000 EMI; I have additional Rs 15,000 to spare. Should I invest this sum or repay my loan?
Stuti Grewal, Mumbai
The decision to repay the education loan fast or to invest the surplus is not easy. If it was based on the interest rate you pay on the education loan and the returns you expect on your investment, it would have been easy to opt for investment if the rate was more from it than what you paid as interest on the loan. However, there is a tax benefit that you can claim under Section 80E when repaying the education loan, which is over and above the tax savings you can claim under Section 80C of the Income Tax Act up to Rs 1.5 lakh in a financial year.
While you could still calculate the savings between the two options based on the tax bracket you fall in; it is still not as simple as it appears. Try by increasing the education loan repayment by additional Rs 10,000 a month and use the remaining Rs 5,000 to invest in equity linked savings scheme (ELSS), which is a type of equity mutual fund in which investments qualify for tax savings under Section 80C of the Income Tax Act.