Tax Deductions on the Educational Expenses of Your Children
As per the provisions of the Income Tax Act, 1961, a taxpayer, who is incurring expenses on the education of their children, can seek children education allowance exemption. This income tax deduction or children education allowance exemption can be declared on the fees paid towards the education of children as well as on the interest incurred on the education loan taken to fund their higher education.
By seeking children allowance education exemption, the taxpayer can also save on taxes by claiming for income tax reductions on their children’s education expenses filing the income tax returns. The taxpayer can claim for such deductions under Section 80C of the Income Tax Act. The total taxable annual income after incorporating the tax deductions is subject to the tax slabs as set up for the given financial year.
The taxpayer will have to furnish all eligible educational expenses along with documented proof to ensure a successful tax deduction and income tax returns process, and successfully claim children education allowance exemption.
Different types of deductions and tax benefits for expenses on children education
The taxpayer can claim tax benefits on education expenses of their children under Section 80C and Section 80E of the Income Tax Act.
Deductions according to Section 80C of the Income Tax Act
Under Section 80C of the Income Tax Act, the taxpayer can claim for a tax deduction on tuition fees paid for their children’s education. The features of tuition fees deduction under 80C for AY 2019-20 include:
- A taxpayer who has incurred expenditure in terms of fees paid for their children’s education can avail for deductions in income tax under Section 80C.
- Only the annual tuition fees paid during a particular financial year could be claimed for tax reductions under this section.
- The maximum amount that could be claimed as deductions under Section 80C is 1.5 lakhs INR.
- Only the individual taxpayer is eligible to claim for income tax deductions under 80C. This provision is not applicable to HUFs (Hindu Undivided Families).
- The taxpayer could claim income tax reductions for no more than two children. The law, however, applies individually to each of the two parents. Therefore, both the wife and husband could claim for deductions separately under Section 80C for each of their children.
- Tuition fees exemption in income tax 2019-20 could be declared only on the fees paid towards the full-time education courses. Any tuition fees paid for part-time education courses do not qualify for any tax reduction.
- The reduction can be declared only on the tuition fees paid for the current year. So, if you have made any advance tuition fee payments for the upcoming years or you are making tuition fee payments for the previous years, these tuition fee payments do not qualify for income tax reductions.
- Fees paid to private tutors or coaches are not included in income tax reductions. Only tuition fees paid to colleges, universities and schools are eligible for income tax reductions.
- The reduction under Section 80C can be declared on tuition fees paid only to Indian educational institutions. Tuition fees paid to foreign universities do not qualify for income tax reductions. However, reductions could be claimed for tuition fees paid to an educational institution which is affiliated with the foreign institutions but is based in India.
- Tuition fees paid towards nursery education and preschool are also eligible for deduction under Section 80C of the Income Tax Act.
- Income tax reductions can be claimed even on tuition fee expenses on the education expenditure of adopted children.
- The parents along with the guardians of the children can apply for a children education allowance exemption provided both parties are active contributors towards their education expenses.
- Tuition fees exemption in income tax 2019-20 can only be claimed by the taxpayer for the tuition fee expense of their children and not for others.
- Additional educational expenditure such as transport and hostel expenses, mess and library fees, development charges and donations do not qualify for deductions under Section 80C.
Deductions under Section 80E
A taxpayer who has taken a loan to pay for expenses relating to the education of their children can apply for a tax reduction under Section 80E on the interest repayment made towards the educational loan. The features of reductions on interest repayments of an education loan under Section 80E include:
- Only individuals are eligible to claim for a tax reduction on interest repayment on the education loan. HUFs (Hindu Undivided Families) do not qualify for income tax reduction.
- Tax reductions on the repayment of interest for education loans can be declared, only if the loan has been used to fund the children’s higher education.
- Tax reductions of income tax are only applicable to the interest repayment. They do not apply to the repayment of the principal amount.
- There is no maximum limit on the amount that could be claimed for income tax reductions under Section 80E. So, the claim amount can go beyond the upper limit of 1.5 lakhs INR, unlike under Section 80C.
- Income tax deduction on interest repayment can be declared on education loans taken to fund higher education in foreign universities that are situated abroad.
- Tax reduction under Section 80E can be declared only on education loans taken from authorised financial institutions, such as banks and non-banking financial institutions. Loans taken from friends, family, relatives and acquaintances do not qualify for children education allowance exemption.
- The tax reductions under Section 80E have to be claimed within eight years or till the time the interest is paid off completely, whichever is earlier.
The Government of India has made various provisions for the taxpayer to claim tax reductions on the expenses on their child’s education. This includes children’s education allowance exemption sec 10 14 ii, as well as, under children’s education tuition fees sec 80C. Hence, the individual taxpayer can take advantage of this income tax circular on tuition fee to save on their taxes.
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