Education and its tax benefitsIncome Tax Act provides a direct deduction on account of fees paid for the education of your dependent children and interest on loans taken for higher education of your children
19 Jan 2010
Since nearly two & half decades, we have been noticing that cost of educating our children is rising consistently and today it is quite steep in all respects.
Education has geometric effect not only on the growth of an individual but also on the growth of a country. Hence it is matter a of concern for all of us, how to educate our children with steep pricing in urban centers and nearly non-existent infrastructure in rural centers.
Unfortunately education has not been a priority area for our Government and the result is in front of all of us. Now that HRD Minister is on the mission to reform Indian education, it has paved the way for better value education for our children.
Thus while imparting education to your children, you are also benefited in certain ways. This way we see that fringe benefits are immense and so are tax benefits. Firstly the Income Tax Act provides a direct deduction of upto Rs. 1 lacs on account of fees paid for the education of your dependent children. In addition to the direct benefit, the act also provides for deduction on accounts of interest on loans taken for higher education of your children.
in respect of fee paid for children:
This deduction in respect of school fees paid is covered under Section 80c of the Income Tax Act. A parent can claim a deduction of payment made for the tuition fee to any University, College, School or any other Educational Institution. The deduction in respect of payments made towards tuition fee can be claimed upto Rs. 1 lac together with deduction in respect of Life Insurance Premium, PF and PPF contributions and Pension etc.
But there are certain conditions for being able to get this deduction.
This deduction can only be claimed in respect of two dependent children of an Individual. An important point to be noted is that this deduction can only be claimed in respect of fee paid to any educational institution within India. Any fee paid for education of a dependent child for education outside India is not allowed for deduction.
It is also worthwhile to note that the deduction upto Rs. 1 lac is allowed for tuition fee paid only. Any payment as donation to any of the educational institution does not qualify for deduction under this provision. In addition to donations to educational institution payments made to the educational institutions towards development fee by under whatever head can not be claimed under this provision.
Benefit in respect of interest paid on loan taken for education of children:
Not only this you can also get the benefit of direct deduction in respect of interest paid for loan taken for the purpose of higher education of certain relatives. This deduction is available under Section 80E of the Income Tax, Act. This benefit can only be claimed in respect of interest paid on loans taken for higher education which implies educational course done after completion of Senior Secondary Examination.
This deduction in respect of interest can be claimed in respect of loan taken for education of yourself, your spouse, your children and the child for whom you are a legal guardian. This deduction can be claimed for eight years in a row beginning from the year when the interest payment starts.
As the benefit can be claimed by the parent as well as the child, the person taking the education can start claiming this deduction, once he starts earning and paying the interest himself. There is no cap on the amount up to which the deduction can be claimed.
In order to take the benefit of interest payment under Income Tax provision, the loan can be taken from any financial Institution or any approved charitable Institution recognized by the Central Government. But deduction under this section is allowed for payment of interest only. The interest can be claimed in respect of loan taken for education anywhere in the world.
This way educational reforms complimented with tax benefits can surely remove the woes related to education and all of us can look forward to quality education for our children at value for money prices.