Tax Talk: No More Taxes for Necessary Education Spending
The Income Tax Act provides exemptions and allowances for an individual taxpayer with respect to amounts spent on education. The development of important skills begins in the primary years when, although not significant, considerable costs are incurred by parents.
When the employer contributes to the education costs incurred by his employees by means of an allowance, this allowance is exempt from tax under Article 10 (14) of the Income Tax Act until at an amount of Rs 100 per month per child for a maximum of two children. The article also allows an exemption from the household expenses allowance for amounts up to Rs 300 per month per child for two children.
Deductions for tuition fees
Under Section 80C, a parent can claim deductions of up to Rs 1.5 lakh during a fiscal year from tuition payments made for the education of the child. This deduction is in addition to other eligible payments such as the Contingency Fund contribution, mortgage repayment, life insurance premium, etc.
An exemption can be claimed for the tuition fee of only two children of the individual and the payments must necessarily be made to a university, college, school or other educational institution located in India. This deduction is available for tuition fees paid for full-time courses only. This includes tuition fees, diploma fees, or post-diploma courses.
Interest relief on loans
The financial cost of borrowing is added to the costs of higher education. To provide relief to students, Section 80E provides for an exemption from the “interest element” paid on loans taken out to pursue higher education. Interestingly, there is no restriction on the amount that can be claimed. Therefore, any amount of interest, including any arrears of interest paid on the education loan in any given year, can be claimed in full.
This deduction can also be claimed for the interest on the student loan taken for part-time courses. Full-time or part-time courses can be taken anywhere in the world. The most important consideration in determining eligibility for this deduction is that the loan must be taken from a financial institution, such as a bank or other government approved institution or an approved charity. Section 80E offers massive relief to taxpayers, as the exemption is not subject to any threshold.
Government wish list
Too many eligible payments or contributions are pooled under section 80C. For example, in the case of a person who contributes to EPF, pays tuition, and repays the home loan, the 80C exemption limit is likely to be exhausted simply by repaying the home loan itself. same. It is therefore necessary that Article 80C be amended. It would help if the government allowed the exemption of tuition fees paid for the education of children in addition to the limit of Rs 1.5 lakh or increased the limit under Article 80C.
The stipulated exempt amounts for Article 10 (14) allowances are also far too low given the rising costs of education and inflation. Tax experts have also suggested a review of the provisions in this regard. It would be interesting to see if the government takes these recommendations into account in the next budget.
The writer is director, Nangia Andersen LLP. Contributions by Paridhi Sen