Income tax benefits of study abroad education loan by Peaceful-Loan

1. Income tax benefits for eight financial years, with no upper limit on tax breaks under the Income Tax 80E rule. This effectively reduces the interest rates to around 7-8%, even in the current high-interest rate macro environment.

2. Income tax opportunity cost: No wealthy family keeps 1-2 crores sitting in their bank accounts to fund their child’s education. Liquidating assets in such cases would attract short-term or long-term capital gains tax. This increases the cost of education to 1.15X to 1.2X, without considering any other aspect at all.

3. Opportunity cost of capital invested in equity or real estate: Both these asset classes are typically viewed with a long-term perspective, offering an expected return on investment of 12-15%. Withdrawing from these investments means missing out on potential earnings at 12-15%, compared to obtaining a loan at 7-8% (after tax benefits).

4. Cash flow: We have observed that wealthy customers often have lower liquidity. They prefer to fund education through loans rather than facing the hassle of liquidating investments every few months due to stock market or real estate fluctuations and the associated tax impact.

5. TCS (Tax Collected at Source): Currently, there is a 5% TCS applicable to money remitted outside India, which will increase to 20% from 1st July ’23. However, if an education loan is availed, the TCS rate is only 0.5% instead of 20%. Although this only affects cash flow, who would want to block the extra money?

6. Accountability of the children: Wealthy families aim to instill a sense of accountability in their children. Taking a loan for education in the child’s name promotes more responsible behavior, ensuring that they don’t take this opportunity for granted. Paying back the loan on their own gives them a sense of accomplishment.

7. No foreclosure charges: In case parents wish to pay off their children’s education loan in one lump sum later on, education loans do not incur any foreclosure charges in India.

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