6 Mins Feb 14, 2022
A degree from a premier educational institute is a pathway to a successful career. But given the rising cost and inflation, quality education may not be within everyone’s reach, especially if you plan to study abroad.
For example, the annual tuition fee for a 4-year programme at a private institution abroad a decade ago was around $24,000. Today, it is over $40,000 per annum, depending on the grade of the private institution you choose. If you were to add the accommodation plus other costs, the total cost could be above $50,000 per annum (in INR terms, nearly Rs 37 lakh per annum considering the current exchange rate). This is likely to escalate over time due to inflation.
Even with savings and scholarships, you may find yourself short of funds. However, with an Education Loan, you can pursue your dream course from any top-ranking institute and even enjoy tax benefits. Let us see how.
Why should you avail of an education loan?
(1) It is available for career-oriented courses like medicine, engineering, management, etc., for graduation and post-graduation programmes abroad (and in India), covering the tuition fee, cost of books, needed lab tools/equipment, laptop/computer, travelling expenses, hostel charges, etc.
(2) It is easy to obtain. As the applicant or co-applicant, you need to be a citizen of India, over 18 years of age, and have secured 50% marks in your HSC/ graduation, and your co-applicant, i.e., parent/s or guardian, needs to have a regular source of income.
(3) You can get a loan based on your needs. For instance, Axis Bank India offers education loans with amounts starting from Rs 50,000 with no upper limit and easy and flexible loan repayment options.
[Also Read: Eight Benefits of Taking an Education Loan in 2021]
Documents required to avail of an Education Loan:
Along with the application form, the documents required to be submitted for availing an education loan are:
- Income statements (Salary slip, Form 16, Income-Tax Returns of the last 2 years, and computation of income for the last 2 years, certified by a Chartered Accountant)
- Last six months' bank statement or passbook
- A copy of the admission letter from the institute along with the fee schedule
- SSC, HSC, Degree Courses, and National Level Entrance Tests mark sheets and/or pass certificates
- Age proof (birth certificate, passport, Aadhaar, PAN card, driving license)
- Address proof (Aadhaar, passport, latest electricity bill, latest telephone bill, ration card, existing house lease agreement, bank account statement)
- Photo identification proofs (Aadhaar, voter id, PAN card, passport, driving license)
- Passport-size photos of the applicant and co-applicants
- Guarantor form (optional)
To prove financial support during the admission process and for select countries during the visa process, Axis Bank provides a provisional sanction letter on request to you, the borrower. At the time of the loan disbursement, the following documents are necessary:
- A Demand Letter from the College or University
- A Disbursement Request Form (DRF) signed by the applicant and co-applicants
- A signed copy of the Loan Agreement (which includes the Demand Promissory Note, DP Note Delivery-cum-Waiver Letter, Standing Instruction Request, and PDC (Post-dated Cheque)
- Sanction Letter signed by the applicant and co-applicants
- Form A2 signed by the applicant or co-applicants in cases involving foreign institutes (for the purchase of foreign exchange)
- Receipts of Margin Money paid to the college/university along with a bank statement reflecting the transaction
- Documents for collateral security (if applicable)
In the event there are subsequent disbursals, in addition to the above, the exam progress report, mark sheet, bonafide certificate, etc., may be required.
While availing of the loan, assess what the Equated Monthly Instalment (EMI) will be by using Axis Bank’s Education Loan EMI Calculator.
Six key benefits of availing of an Education Loan:
- Your existing finances are not exhausted.
- You are not required to use your existing investments for other important financial goals such as your children's marriage, your own retirement, and a variety of others.
- The loan can be worked out to suit your budget and requirements.
- The interest rate on education loans is competitive.
- The loan is usually disbursed within 15 working days.
- You are entitled to a tax benefit under Section 80E of the Income-Tax Act, 1961.
Tax benefit available for Education Loan:
The interest paid (which is a component of your EMI) on the Education Loan is allowed as a deduction under Section 80E of the Income Tax Act, 1961. The deduction is available for a maximum of eight years or till the interest is paid, whichever is earlier. Note that the deduction is available from the year you start paying the interest on the education loan and the seven immediately succeeding financial years or until the interest is paid in full, whichever is earlier.
There is no maximum limit on the amount of interest that can be claimed as a deduction. However, the conditions are that the Education Loan must be availed from a bank, an approved financial institution, or an approved charitable institution, it should be taken to pursue higher studies (does not matter whether abroad or in India); and only an individual assessee can claim this deduction.
Use Axis Bank's Education Loan Tax Benefit calculator to find out how much tax benefit you can get by availing of an Education Loan. It will help you ascertain the total amount of interest you would pay on your education loan, the tax you would save under Section 80E, the post-tax effective interest amount over the loan tenure, and the effective interest rate on your education loan.
There is another tax benefit for students studying abroad. Under current laws, any payment above Rs. 7 lakh made abroad attracts TCS (Tax Collected at Source) of 5%. So, if a student is studying abroad and she self-finances the course, she will have to pay 5% TCS. However, if the student avails an education loan from a financial institution in India, the TCS is only 0.5%.
Education is a long-term personal investment that has the potential to generate greater returns than any other. Access to Education Loan is worth it for the returns you can reap in the long run.
Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision