- As per Section 80C of the Income Tax Act 1961, any amount paid towards as tuition fees is deductible from taxable income
- If both parents are working and pay taxes, both can claim individually up to the amount of fees paid
Tax Deduction on Tuition Fees for Children
As per Section 80C of the Income Tax Act 1961, any amount paid towards as tuition fees (excluding any payment towards any development fees or donation or payment of similar nature), whether at the time of admission or thereafter, to any university, college, school or other educational institution situated within India is deductible from taxable income.
The fee reduces the total gross income which in turn reduces the tax liability. Let us say you fall in the highest income bracket and you pay 30.9 per cent as tax, and you pay Rs 80,000 a year as child’s tuition fees. In this case, the tax saved will amount to Rs 24,720 in that year i.e. 30.9 per cent of Rs 80,000.
Which parent can avail tax benefit?
The parent who makes the payment of tuition fee can avail the tax benefit. If both parents are working and pay taxes, both can claim individually up to the amount of fees paid. For instance, the fee paid is Rs 3 lakh, of which both parents have paid equally, both can claim the amount individually as per the payment made by them.
Under what conditions?
The deduction shall be allowed only if such amount is paid to the eligible institution towards full-time course. Accordingly, any tuition fee towards correspondence course or additional coaching shall not be eligible as deduction. Sometimes, parents make other payments to institutions like developments fees or donations. These are not eligible for deduction too.
Also, the total deduction from taxable income under Section 80C does not exceed Rs. 1,50,000.
Do note, only the fee payments made on time are eligible for deduction.
For how many children?
For the purpose of deduction under Section 80C, amount paid as tuition fee for any two children of such individual is allowable as deduction.
Tax Deduction on Interest on Education Loan
The Govt. also allows deduction in respect of any amount paid by an individual towards interest on loan taken from any financial institution or any approved charitable institution for the purpose of pursuing higher education of self or spouse and children. This can be availed under Section 80E.
This deduction is allowed for eight years, starting from the year in which repayment of such loan starts. For the purpose of this deduction, “higher education” means any course of study pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognized by the Central Government or State Government or local authority or by any other authority authorized by the Central Government or State Government or local authority to do so.
As such, Govt. indeed provides several tax concessions and incentives in respect of education expenses and one must indeed strive to avail maximum benefit within the provisions of the Income Tax Act.
While the Govt incentivises your efforts to educate your child, do not forget to create a long term portfolio for funding your child’s aspirations. Estimate the amount needed for higher studies, factoring inflation and start investing for it with discipline right away. To ensure that the goal is met, do buy adequate life cover, preferably through Unit Linked Insurance Plan (ULIP) to benefit from insurance and investment in a single structure.