From the time a child is born, no expenditure is too much for the parents for the well-being of their bundle of joy.
From the time a child is born, no expenditure is too much for the parents for the well-being of their bundle of joy. As the child grows and enters his/her first day of school, the expenses start to pile up, which the parents accept and strive to meet the demands of raising their child in present-day society. The government understands the demands parents face both emotionally and financially, which is why measures have been placed to lessen the financial burden for parents, with tax-saving schemes for the expenses incurred. While the current tax-saving benefits are helpful, they can be modified and new schemes can be introduced in the upcoming Union Budget 2018, which will cater even more to the needs of the parents.
Under the present scheme, parents can avail of deductions u/s 80C and 80E for education expenses incurred. While these deductibles go a long way in lowering the tax liability of the parents, more can be done in the Union Budget 2018 by Finance Minister Arun Jaitley to lessen the burden of the piling costs/expenses.
1. Section 80C: Currently, u/s 80C, parents are allowed a maximum deductible of R 1,50,000. This deductible can only be used for the tuition fees paid for the year. However, the school expenses incurred by the parents per year include hostel, transportation, mess charges etc. The Union Budget 2018 could allow parents to use some or entire amount of these expense to reduce their tax liability, which would be greatly welcomed.
Moreover, only individuals (father, mother and legal guardian (for adopted child)) can avail of these deductions. It does not extend to Hindu Undivided Family (HUF) or other types of guardianship, such as grandparents or uncles and in some cases siblings. Educating the young, while an expense, it is also an investment in the future of the individual, the family and country. Finance Minister Arun Jaitley can make allowances that allow different types of parents/guardians to avail of the same deductions, instead of limiting it to only biological and the adopted parents of the children.
2. Sukanya Samruddhi Yojana: This scheme, which was launched by PM Narendra Modi in January 2015, is a high interest rate saving for a girl child, to be used for their education/marriage. The money saved is tax free upon maturity. At present, parents/guardians can claim tax deductions for the payments made towards this scheme u/s 80C. However, the Union Budget 2018 might like to consider making the deductible separate from 80C deductibles, over and above Rs 1,50,000. This could lead to a boost in the adoption of the investment scheme, while brightening the future of the girl child, which was the motivation behind the introduction of Sukanya Samruddhi Yojana.
3. Section 80E: In addition to the Rs 1,50,000 the interest incurred on education loans can also be claimed as a deductible on yearly tax returns. The interest deductible available for education loans taken for schooling is restricted to self/spouse or children. Again, this scheme is not allowed for HUF, which is a major drawback, for a country where many people still belong to the HUF. The Union Budget 2018 might want to allow HUF to also avail of this deductible for expenses incurred on education of eligible member of the family.
4. Education Savings Schemes: While in India, we currently have no children’s education savings plans, a few other developed countries, like USA, have plans such as 529, which allow parents to save for their child’s future education, while benefitting from its tax benefits. Education is increasingly expensive and if we factor inflation into the equation, the amount of money you will need for the higher education of your child may cripple your finances in the future. The introduction of a children’s education scheme in the new Budget would be greatly welcomed by many parents, as currently no such scheme exists.
The country has undergone foundational changes this past year. The changes implemented have all been for the greater good. Therefore, the idea of modifying the existing schemes to be more lenient and introducing new schemes that are more helpful to the common person is not implausible and will help to win over the hearts of the people.
By Chetan Chandak, Head of Tax Research, H&R Block India