Three types of income tax benefits available for education

 Education has potential to improve quality of life of individuals in geometric progression velocity. The government also provides certain reliefs to the tax payers in this respect. Let us discuss the benefits available under the income tax laws in India in connection with education.

Deduction under Section 80 C for expenses on full time education in India

You can claim a deduction upto Rs. 1.50 lakh every year for tuition fee paid for maximum of two children, in respect of full time education in India. This deduction is not exclusive but is available together with other eligible items like contribution to provident fund contribution and PPF, home loan repayment, life insurance premium etc. This benefit is available for education in any school, college, university or any other educational institution in India. Since this covers only expenses for full education, the payments made to coaching institutes or classes are not eligible for this deduction.

It is important to note that the deduction is available only for tuition fee and other payments like any donation or as development fee by whatever name called paid are not eligible for this deduction. In case you have more than two children undergoing full time education, you can claim this deduction only for two children of your choice. However, if your spouse is also working then the other parent can also claim deduction for other children. In case the fee paid for two children exceeds the limit of Rs. 1.50 lakh, the excess fee can be claimed by the other parent. There is no bar on both the parents claiming deduction for the same children but double deduction is not permissible for the same expenditure. Please note deduction under Section 80 C is available only for full time education so this deduction cannot be claimed for any correspondence course. Moreover, this deduction is available for education in India so you cannot claim deduction for fee paid for education outside India.

Tax benefits for interest paid on education loan

In addition to the above benefit of tuition fee, a person can claim deduction for interest paid on education loan taken to finance higher education of certain relatives under Section 80E. Higher education for this purpose means any educational course undertaken after completion of Senior Secondary Examination. You can claim this benefit for yourself, spouse and any number of your children. You can also claim this deduction for a child for whom you are a legal guardian.

This deduction can be claimed for eight years in a row starting from the year in you start servicing the loan. It may please be noted that this deduction can only be claimed on payment basis. So in case you pay arrear of interest on your education loan in a particular year, you will be able to claim full interest paid during the year irrespective of the year to which the interest pertains. Unlike the home loan where you can claim deduction upto specified limits there is no monetary limit for claiming deduction for interest on education loan.

Moreover, you can claim this deduction education loan taken for part time as well as full time course unlike deduction under Section 80 C for tuition fee. It is interesting to note that this deduction is available for loan taken for education anywhere in the world, unlike deduction for tuition where the educational institution has to be situated in India.

For being eligible to claim this deduction the loan has to be taken either from any financial Institution or any approved charitable Institution. The financial institution for this purpose include any bank or any other institution approved by the government. The charitable institution should also be recognized as such by the central government. So if you borrow from your friends or relatives to fund education, you cannot claim this deduction.

In case you take education loan for full time education in India, you can claim deduction for interest for such loan under Section 80E as well as for tuition fee paid under Section 80 C. 

Exempt Allowance for salaried people

In addition to the two benefits explained above which are available for all the taxpayer whether one is salaried or self-employed, the tax laws also allow for exemption of certain allowances given by the employer to an employee. The first such exempt allowance is education allowance received from your employer up to Rs. 100/- per month each for two of your children. The second such exempt allowance is hostel allowance paid by employer maximum at the rate of Rs. 300/- in respect of each child restricted to maximum of two children. It is important to note that the allowance will be treated as exempt only if you have incurred the expenses against the allowance granted by your employer. Moreover, you cannot claim these exemptions unless your employer provides you such allowance as component of your salary.

I am sure the above discussion will help you better understand the tax benefits for education.

Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant on Twitter.