Are you using education expenses for tax planning purpose?
Education can not only make an individual knowledgeable but also help to achieve his / her financial goals. It is said that any amount invested in education does not get wasted if applied prudently. Nelson Mandela (an anti-apartheid revolutionary and politician) has so beautifully said, "Education is the most powerful weapon which you can use to change the world."
Recognising this power of education which can do well to the society at large, the Income-Tax Act, 1961 too provides benefits to individuals.
PersonalFN through this article, brings to you how you can use education expenses for tax planning purpose.
PersonalFN believes that educating your children, or even yourself, is imperative for building a responsible society and even for long term financial wellbeing. Hence, it should not be ignored. Moreover, if you plan your taxes wisely, then the amount spent for education purpose will become cost effective.
- Tuition fees paid for children's education
As a parent if you are paying tuition fees towards your children's education to any university, college, school or other educational institution situated within India, you can claim a deduction under Section 80C of the Income-Tax Act, restricted a sum of Rs 1,50,000 and up to a maximum of 2 children. If someone has four children, then the husband and wife both can enjoy a separate limit of two children each, so they can separately claim deduction (up to Rs 1,50,000) for 2 children each, subject to the amount they have actually paid.
However, it is important to note that tuition fee only is eligible for deduction and the following expenses cannot be claimed by you under this section.
- Fees paid for distance learning courses or part-time education
- Fees paid for coaching classes or private tuitions
- Admission fees
- Development fees
- Term fees
- Late Fees
- Fees paid for education of spouse
- Expenses incurred for self-education
- Expenses incurred for transport, library, hostel or mess etc.
You must also note that this deduction can be claimed only by an individual assesse and not by Hindu Undivided Family (HUF).
- Interest on loan taken for higher education
If you as an individual have taken an education loan for "higher education" for yourself, your spouse, your children, or for any person (minor) for whom you are the legal guardian, then the interest paid on such a loan can be claimed as a deduction under section 80E of the Income-Tax Act. The deduction is available for a maximum of 8 years or till the interest is paid, whichever is earlier. So, to simplify it further, the deduction is available from the year in which you start paying the interest on the loan, and the seven immediately succeeding financial years or until the interest is paid in full, whichever is earlier.
Some important points to remember while claiming this deduction are:
- If you wish to claim this deduction, then the loan has to be taken from a bank, an approved financial institution or an approved charitable institution
- "Higher education" means full-time studies for any graduate or post-graduate course pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognised by the Central or the State Government or local authority or any other authority authorised by the Central or the State Government or local authority to do so. However, no deduction is available for part-time courses
- HUFs are not allowed to claim deduction under section 80E
- Education allowance
If you are married with kids, and if your employer is providing with education allowance, then do not refrain from availing it, as this can again help you in reduction of your tax liability.
Some important points to remember while claiming an exemption here are:
- The exemption extended to you under the Income-Tax Act is Rs 100 per month for a maximum of two children (i.e. in other words Rs 2,400 p.a. totally)
- Similarly, if your children are staying in a hostel then a maximum of Rs 300 per month per child, but subject to a maximum of two children will be available to you as an exemption (i.e. Rs 7,200 p.a.)
PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.
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