The government provides some relief to taxpayers by allowing various tax benefits on education loans and fees. Find out how can you avail such benefits.
Education has the potential to propel the qualify of life of society and individual in geometric progression velocity. Since education is becoming more and more expensive year after year, the government intends to provide some relief to the tax payers by allowing various tax reliefs in this respect. Let us discuss the benefits attached with education under income tax laws.
Tax benefits on interest paid on education loan
A person can avail tax benefit in respect of interest paid for a loan taken for the purpose of higher education of certain relatives under Section 80E. Higher education for the purpose of claiming interest means any educational course undertaken after completion of Senior Secondary Examination. The benefit can be claimed for yourself, your children or even your spouse or even any child for whom you are a legal guardian.
This deduction can be claimed for eight years in a row beginning from the year in which interest payment starts. Please note that the deduction is allowable on payment basis. So in case you pay arrears of interest on your education loan in a particular year, you will be able to claim full interest paid during the year irrespective of the year to which the interest pertains to.
There is no restrictions as to the quantum of deduction unlike for tuition fee for which the overall claim will be restricted to Rs 1.50 lakh in a year. Moreover the course for which the education loan is taken can be part time or full time unlike for claiming tuition fee. It is 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 where the educational institution has to be situated in India.
For being eligible to claim this deduction, a loan has to be taken from any financial Institution or any approved charitable Institution. The financial institutions include 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 cannot claim this deduction.
Payment of tuition fee of children
The tax laws allow you a deduction up to Rs 1.50 lakh every year in respect of the tuition fee paid for full-time education of a maximum of two of your children in India. This deduction is available together with other eligible items of deduction like provident fund contribution, PPF, home loan repayment, life insurance premium, etc. The education can be had in a school, college, university or any other educational institution in India. Since this covers only expenses for full education, any payments made to coaching classes are not covered under this section. The eligible fee paid can be claimed even if the children is not dependent on you.
It is also worthwhile to note that the deduction up to Rs 1.50 lakh covers only tuition fee and does not cover any donation or as development fee 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 parent can claim this deduction for two children.
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 up to Rs 100 per month each for two of your child. The second exempt allowance is hostel allowance @ Rs 300 for each child for up to 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 not claim these exemptions unless your employer provides you such allowance as part of your salary.
From the above discussion it becomes apparent that the government is keen to improve the level of education in India and grants various tax benefits related to education.
(By Balwant Jain, tax and investment expert)