Income Tax Deduction on your Children’s Education u/s. 80C and 80E of the Income Tax Act, 1961

The cost of educating our children is rising consistently. It’s a matter of concern for all of us. One relief is the tax benefit provided for spending on children’s education. The Income Tax Act provides a direct deduction on account of fees paid for the education of dependent children. The act also provides for deduction on account of interest on loans taken for higher education of children.

Under Section 80C on Tuition Fees Paid

This deduction in respect of school fees is covered under Section 80C of the I-T Act. A parent can claim a deduction of payment made for tuition fee to any university, college, school or any other educational institution.

The deduction on payments made towards tuition fee can be claimed up to Rs 100,000, together with deduction in respect of insurance, provident fund and pension.

But, there are certain conditions to get this. It can only be claimed in respect of two dependent children and for fees to an educational institution within India and, for tuition fee only. Payment as donation or development fee to an educational institution does not qualify.

The following are the deduction allowed under tuition fees

• Fees paid to regular educational institution irrespective of the class attended by the child.
• Payment of fees to play schools or creches will be allowed as deduction.
• Fees for admission are excluded from amounts eligible for deduction.
• The deduction is allowed only for two children.
• Deduction is available of paid basis.
• Adopted Child’s tuition fees is also eligible for deduction

The following are the deduction not allowed under tuition fees

• Deduction is not allowed for private tuition, coaching center.
• University College School or other educational institution must be situated in India. It can be affiliate to any foreign university.
• A late fee is not eligible for deduction.
• Development fees or donation is not eligible.
• Payment of fees for overseas education is not allowed.
• Fees for admission are excluded from amounts eligible for deduction.
• Transport charges, hostel charges, Mess charges, library fees charges incurred for education are not allowed
• Spouse’s tuition fees is not allowed for deduction.

Under Section 80E on Interest paid on Education loan

You can also get the benefit of direct deduction on the interest paid for a loan taken for the purpose of higher education. This is available under Section 80E of the I-T Act. This benefit can be claimed for a loan taken for education of yourself, your spouse, your children and the child for whom you are a legal guardian. It 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.

The loan in this regard can be taken from any financial Institution or charitable institution recognised by the central government. It can be claimed on a loan taken for education anywhere in the world.

So if you are going to take a loan on education keep in mind these factors to avail the tax benefits:-

1-These deduction is available only to individual and not for H.U.F.

2-Deduction amount-The deduction amount is only the interest paid on the loan of higher  studies and there is no limit. You can get tax benefit on entire amount of interest paid but not the PRINCIPAL.

3-Deduction only will be available if interest is paid out of tax chargeable income.

4-Deduction only be available if the loan is taken from financial institutes or approved charitable institutes. Loan taken by family or relatives not included.

5-Loan should be taken for higher studies means any full time course of graduate or post graduate course. After +2 full time course would be eligible for it.

6-Deduction available only to self or dependent like spouse & children. From A.Y 2010-11 Relative also includes student for whom the individual is the legal guardian

7. Deduction period: – Deduction shall be allowed in computing the total income in respect of the initial assessment year* and seven assessment years immediately succeeding the initial assessment year or until the interest is paid by the assessee in full, whichever is earlier.The maximum tenure to get the tax benefit is 8 years.

8-The study can be anywhere in the world and not necessary to be in India.