Education has potential to propel quality of the life of individuals with geometric progression velocity. With the object of making the burden of education lower, the government provides certain reliefs to tax payers by allowing them some tax benefits. Let us discuss the various benefits attached with education, which are available under out Income-Tax (I-T) laws.
Payment of tuition fee of children
The tax laws allow you a deduction upto Rs1.50 lakh every year in respect of tuition fee paid for full time education of your children in India. This benefit is available only in respect of maximum two children per tax payer. This deduction is available together with other eligible items of deduction like Provident Fund (PF) contribution. PPF, home loan repayment, life insurance premium, ELSS, NSC, etc. The education can be had in a school, college, university or any other educational institution in India. Since it covers expenses only for full time education, any payments made to coaching classes, or hostel fee paid for your child will not qualify for this deduction. The eligible fee paid can be claimed even if the child is not dependent on you.
It is also worthwhile to note that the deduction covers tuition fee only and does not cover any donation or any development fee paid by whatever name called. In case a person has more than two children undergoing full time education and if both the parents are working then each of the parents can claim this deduction for two children. Even in case the number of children do not exceed two but the expenditure incurred for their education exceeds the threshold limit of Rs1.50 lakh, both the parents can divide and pay the fee in such a way so as to ensure that both parents are able to claim maximum possible expenditure.
Tax benefits for interest paid on education loan
In addition to the above benefit of tuition fee, a person can also avail tax benefits in respect of interest paid for loan taken for the purpose of higher education of self and certain specified relatives under Section 80E. Higher education for the purpose of claiming this deduction means any educational course undertaken after completion of Senior Secondary Examination.
The benefit can be claimed for yourself, your spouse, your children even for the child for whom you are a appointed as legal guardian. In case any of the parent joins as co borrower in the education loan, the parents can minimise the tax outgo by paying the interest during the study period and even during initial stage when the child has lower tax slabs as compared to the parent.
The deduction for interest on education loan can be claimed for eight consecutive years beginning from the year in which interest payment starts. Please note that the deduction in respect of interest is allowable on payment basis only so in case you pay arrear of interest on your education loan in a particular year, you will be able to claim whole of interest paid during the year irrespective of the year to which the interest pertains to. Unlike a home loan, where you can claim deduction for repayment of the principal amount under Section 80 C, no deduction for repayment of principal amount is available in respect of education loan.
There is no upper monetary limit of deduction unlike limit applicable for tuition fee as discussed above. Moreover, the course for which the education loan is taken can be a part time or full time course unlike for claiming tuition fee which has to be a full time course. It is also interesting to note that the deduction in respect of interest payment for loan can be for education anywhere in the world, unlike deduction for tuition fee where the educational institution has to be situated in India. Moreover you can claim this deduction for any number of children whereas the benefit of tuition fee is available only for two children.
For being eligible for this deduction, the education loan has to be taken from any financial institution or any approved charitable Institution. The financial institution includes any bank or any other institution approved by the government. The charitable institution should also be recognized as such by the central government. So, if you borrow from your friends or relatives for your education, you can't claim benefit for interest paid on such loans.
Exempt Allowance for salaried people
In addition to the above benefits, which are available to salaried and self-employed both, the tax laws also provide for certain allowances received by an employee from his employer as fully exempt. The first exempt allowance is education allowance received from your employer upto Rs100 per month each for maximum of two of your child. The second exempt allowance is hostel allowance at Rs300 for each child, which is also available for two child. It is important to note that the allowance will be treated as exempt only if you have incurred the expenses against the allowance granted by your employer. Moreover, you can't claim these exemptions unless your employer provides you such allowance as part of your salary.
Please note the above benefits will not be available if the tax payer opts for new tax regime where the tax rates applicable are lower than those who opt for old regime with benefit available for various deductions.
From the above discussion it becomes apparent that the government is keep to improve the education levels in India and grants tax benefits related with education.
The writer is a tax and investment expert and can be reached at email@example.com and on his twitter handle @jainbalwant