In order to promote education, the government provides certain relief to the individual tax payers in respect of certain expenses incurred by them for education. Let us discuss these tax benefits.
Tuition fee for children
You can claim deduction upto Rs. 1.50 lakh every year for tuition fee paid for full time education of your children in India. This deduction can be claimed only in respect of two children by a tax payer. In case you have more than two child, your earning spouse can separately claim deduction for other children. This tax benefit is available by way of deduction with other eligible items like provident fund contribution. Public Provident Fund, repayment of principal of home loan, life insurance premium, NSC, ELSS etc. The educational institution has to be situated in India to be eligible for this benefit.
Since this benefit covers expenses for full time education only, payments made to coaching classes are not eligible for this benefit. You can claim this benefit for your children whether he is financially dependent on you or not. Please note that this deduction is available for tuition fee only and any donation or development fee paid to the educational institution is not eligible for this benefit. In case the fee for even one child exceeds the eligible amount of Rs. 1.50 lakh in a year, the other spouse can claim the deduction in respect of the balance amount for the same child within the limit of Rs. 1.50 lakh.
For interest on education loan
In addition to tuition fee paid, you can also claim deduction under Section 80E for interest paid in respect of education loan taken for higher education of some specified relatives. Higher education for this purpose means any educational course undertaken after completion of Senior Secondary Examination. You can claim this benefit for education loan taken for yourself, your own children, or a child for whom you are a legal guardian or even your spouse.
This deduction is available for eight consecutive years starting from the year in which you start paying interest. This deduction is available on payment basis. So in case of payment of arrear of interest in a year, the benefit is available for full interest paid during the year irrespective of the year to which the interest paid pertains.
There is no limit on the quantum of deduction available for interest unlike for tuition fee which is restricted to Rs. 1.50 lakh in a year. This benefit is available even for education loan taken for part time course anywhere unlike benefit for tuition fee which can only be claimed for full time course and that too in India.
It is not that you can claim the benefit in respect of money borrowed for higher education from anyone. The education loan for availing this benefit has to be availed from any financial institution or any approved charitable Institution in India. The financial institution includes any bank or any other institution approved by the government. The charitable institution should likewise be recognized by the central government. So if you borrow from your friends or relatives for your education, you cannot claim this deduction for interest paid to them.
In addition to the above benefits available to all Individual tax payers whether salaried and self employed, the tax laws also exemption for certain allowances received by employee from their employer. An education allowance upto Rs. 100/- per month per child for two of your children is fully tax free. Likewise a hostel allowance received and spent by you is exempt upto @ Rs. 300/- for each child for upto two children. You can claim these exemptions only if your employer provides you such allowance separately as part of your salary.
Writer is a tax and investment expert.