Remittance Fee on Education Loan
Education Loan

Remittance Fee on Education Loan

Remittance Fee on Education Loan

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What is remittance fee on education loans—an essential yet frequently overlooked charge? Learn with GyanDhan, the reasons behind its imposition & the associated costs.

GyanDhan

Rohit Gidwani

Updated on: 25 Jan 2024

There are a few charges you need to bear to ensure the smooth transfer of funds from India to abroad. People often refer to them as hidden charges. One such charge, less talked about, is the remittance fee, particularly pertinent in the context of an education loan. While not exorbitant, it is still essential for you to be aware of this fee. In this blog, you will gain comprehensive insights into the remittance fee associated with education loans.

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What is a Remittance Fee?

In a general context, remittance signifies the movement of money from one country to another, commonly abroad, upon receiving a bill or invoice. In the realm of education loans, when transferring funds for tuition fees or living expenses from India to your destination country, a remittance fee is applicable. This fee is imposed on various cross-border transactions, contributing significantly to a country's economy and aiding individuals in lower-income nations. Remittance plays a crucial role in poverty alleviation, making it an essential element in economic development.
 

Remittance fees on education loans are imposed by banks or financial institutions from whom you have taken an education loan, for international money transfer, depending on the remitted amount. It's crucial to confirm these charges with the respective bank beforehand to ensure transparency and make informed decisions.

 

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Why Remittance Fee is Charged?

Remittance fees on education loans are charged to cover the expenses incurred by banks or financial institutions when transferring funds from one country to another for educational purposes. These fees help sustain the operational and administrative aspects involved in facilitating secure and efficient international money transfers related to education loans. The charges contribute to maintaining the infrastructure and services necessary for seamless cross-border transactions in the education financing process.
 

 

Quick Read - Margin money in education loans is the borrower's own contribution, often a percentage of the total transaction, used to mitigate risk. A remittance fee is a charge for transferring funds internationally, covering the costs of processing and facilitating cross-border transactions.

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How Much is Remittance Fee on Education Loan?

There is a scheme known as the Liberalised Remittance Scheme (LRS) that enables parents to send money to their children for various expenses incurred in a foreign country. A maximum limit of $250,000 has been established for such transfers. Under this scheme, if a parent or anyone sends an amount below 7 Lakh INR, it is not subjected to any remittance fee. However, if the amount exceeds this 7 Lakh INR threshold, a remittance fee of 0.5% will be imposed. This fee is applicable only when the money is transferred through an RBI-regulated and authorized financial institute. In contrast, if the amount is not sourced from an RBI-regulated financial institute, and payment is made directly from personal funds, a 5% fee is levied on the amount exceeding 7 Lakh INR.
 

To illustrate, suppose you are sending 9 Lakh INR from your personal savings, exceeding the LRS limit by 2 Lakh. In this case, you would be required to pay a 5% remittance fee, amounting to 10,000 INR. If the transfer was through an education loan, the remittance fee would be 0.5%, resulting in only 1,000 INR.
 

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Expenses Included in Remittance Fee on Education Loan?

Initially, there was considerable confusion about the expenses included in the remittance fee for education loans. Recently, the Finance Ministry of India clarified that starting from June 30, 2023, the following items will be incorporated in the remittance fee for education loans - 

  • list items Purchase of airplane tickets for the person undertaking studies abroad, facilitating travel between India and the target country.
  • list items Tuition fees and any other fees associated with studying abroad.
  • list items Daily living expenses, covering costs for food, accommodation, transportation, health services, and more.  

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Now that you understand how and why the remittance fee is applied to money transfers between India and abroad, you can plan your application for disbursement of education loan accordingly. One crucial point to note is the significant advantage of only a 0.5% remittance fee when opting for an education loan compared to 5% when using personal funds. This highlights the substantial savings achievable through an education loan. Moreover, you don't need to navigate the market for an education loan. Securing one is as simple as checking your eligibility through GyanDhan. Once you've done that, you can sit back and relax, as we take care of all the other details for you and make sure to inform you about everything and do not keep any hidden charges.
 


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Frequently Asked Questions

Why is a remittance fee important in the context of my education loan?

The remittance fee on education loans is charged to cover expenses incurred by banks during the secure transfer of funds for educational purposes across borders.

How much remittance is tax free?

In case you are sending an amount that is less than 7 Lakh per financial year then you do not need to pay any remittance fee on it. 

Who pays the remittance fee?

The party responsible for paying the remittance fee varies and is typically outlined in the terms of the transaction. In the case of an education loan where the disbursement has been made in your own account then you will be responsible for paying the remittance. In case the bank disburses the amount directly then they will be paying the fee but may take the same from you prior to disbursement. 

How is remittance calculated, and what are the education loan remittance fees?

Under LRS, if a parent sends an amount below 7 Lakh INR, there is no remittance fee. However, amounts exceeding this threshold may incur a 0.5% fee if transferred through an RBI-regulated institute or a 5% fee if sourced from personal funds.

What expenses are covered in the remittance fee for my education loan?

The clarified remittance fee, effective from June 30, 2023, encompasses airplane tickets, tuition fees, and daily living expenses associated with studying abroad, such as food, accommodation, transportation, and health services.