Exemption can be claimed in respect of tuition fee of only two children of the individual and the payments must necessarily be made to a university, college, school or any other educational institution situated within India.
The Income tax act stipulates exemptions and allowances to an individual taxpayer in respect of amounts expended towards education. The development of prominent skills initiates in primary years where although not significant but considerable costs are incurred by parents.
Where the employer contributes towards education cost incurred by his employees by way of an allowance, such allowance is exempt from tax under Section 10(14) of the Income Tax Act up to an amount of Rs 100 per month per child for a maximum of two children. The section also allows exemption in respect of hostel expenditure allowance for amounts up to Rs 300 per month per child for two children.
Deductions for tuition fees
Under Section 80C, a parent can claim deductions of up to Rs 1.5 lakh in a fiscal year on tuition fee payments made towards education of the child. This deduction is along with other eligible payments such as Provident Fund contribution, home loan repayment, life insurance premium, etc.
Exemption can be claimed in respect of tuition fee of only two children of the individual and the payments must necessarily be made to a university, college, school or any other educational institution situated within India. This deduction is available for tuition fee paid towards full time courses only. This includes school fees, fees for graduation or post-graduation courses.
Exemption for interest on loans
The finance cost of borrowings adds to the costs for higher education. To provide relief to students, Section 80E stipulates exemption in respect of “interest element” paid on loans taken for pursuing higher education. Interestingly, there is no restriction on the amount that can be claimed. Therefore, any amount of interest including arrears of interest paid on education loan in a particular year can be claimed in full.
This deduction can be claimed for interest on education loan taken for part time courses as well. Full-time or part-time courses may be pursued anywhere across the world. The most important consideration to ascertain eligibility for claiming this deduction is that the loan must be taken either from a financial institution, such as a bank or any other institution approved by the government or an approved charitable institution. Section 80E provides massive relief to taxpayers as the exemption is not subject to any threshold limits.
Wish list to the government
Too many eligible payments or contributions are huddled under Section 80C. For instance, in the case of an individual who contributes towards EPF, pays tuition fee and repays home loan, the exemption limit of 80C is likely to get exhausted just by repayment of home loan itself. It is thus necessary that Section 80C be overhauled. It would help if the government allows exemption of tuition fee paid towards education of children additionally over and above the limit of Rs 1.5 lakh or alternatively enhance the limit under Section 80C.
The exempt amounts stipulated in respect of allowances under Section 10(14) are also way too less given the rising costs of education and inflation. Tax experts have also suggested revision of the provisions in this respect. It would be interesting to see if the government pays heed to these recommendations in the coming Budget.
The writer is director, Nangia Andersen LLP. Inputs from Paridhi Sen