In this insightful fictional conversation between Arjuna and Krishna, the rising cost of education and the limited tax relief available to parents in India are thoughtfully discussed. As schools and colleges reopen, Krishna explains the income tax provisions under Sections 80C and 80E that provide deductions for tuition fees and education loan interest, respectively. However, these benefits are only available under the old tax regime. Other educational expenses, such as coaching, admission fees, transport and books, do not qualify for deductions. The dialogue emphasizes the need for strategic financial and tax planning for parents striving to secure quality education for their children.
Arjuna (Fictional Character): Krishna, the schools and colleges are reopening. Admissions are going on everywhere, and parents are worried about the rising cost of education. Each one wants to give their child the best schooling and career opportunities. But quality education these days demands a lot of money. Is there any relief provided in the Income Tax Act for such educational expenses?
Krishna (Fictional Character): Arjuna, you are absolutely right. The burden of educational expenses is increasing with each passing year. Parents have to spend on tuition, admission, books, uniforms, transport, coaching, and more. In this situation, it is very important for taxpayers to be aware of the income tax provisions that can offer relief, especially when filing their income tax returns. Though there are provisions, they are limited and must be understood carefully to benefit from them.
Arjuna (Fictional Character): Krishna, among all these different fees and expenses, which ones are eligible for tax deduction?
Krishna (Fictional Character): Arjuna, under the Income Tax Act, only tuition fees paid to a recognized university, school, college, or educational institution situated in India are eligible for deduction under Section 80C. This deduction is available only for full-time education and for a maximum of two children. Also, this tuition fee deduction is part of the overall limit of Rs. 1,50,000, which includes other items like life insurance premium, PPF, and principal repayment of housing loan.
Expenses such as admission fees, development charges, donations, private coaching, transport, hostel fees, and books are not eligible for deduction. Also, this benefit is only allowed on actual payment and not on provisioned or planned expenses.
Arjuna (Fictional Character): Krishna, nowadays many salaried employees receive Children Education Allowance and Hostel Allowance from their employers. Can they claim any exemption on these?
Krishna (Fictional Character): Yes Arjuna, such employees can claim a small exemption under Section 10. A maximum of Rs. 100 per month per child is allowed for Children Education Allowance, and Rs. 300 per month per child is allowed for Hostel Expenditure Allowance, up to a maximum of two children. This amounts to Rs. 1,200 and Rs. 3,600 per child per year, respectively. Though the amounts are small, they should still be claimed if available.
Arjuna (Fictional Character): Krishna, many parents take education loans to support higher studies. Is there any tax benefit for that?
Krishna (Fictional Character): Yes Arjuna, if an individual takes an education loan from a bank or approved charitable institution to pursue higher education for self, spouse, children, or a student for whom the individual is a legal guardian, the interest paid on such a loan is deductible under Section 80E. The deduction is available for eight consecutive assessment years starting from the year in which interest repayment begins, or until the interest is fully paid, whichever is earlier.
There is no cap on the amount of deduction, but it is allowed only on interest, not on principal repayment. But remember, this deduction is not allowed under the new tax regime.
Arjuna (Fictional Character): Krishna, the government has introduced a new tax regime under Section 115BAC. Does it affect these deductions and exemptions?
Krishna (Fictional Character): Arjuna, under the new tax regime, which is now the default regime, most deductions and exemptions, including the tuition fee deduction under Section 80C and the education loan interest deduction under Section 80E, are not available.
Therefore, taxpayers must carefully evaluate both the old and new tax regimes. If they have significant deductions such as school fees, housing loan repayments, and insurance premiums, the old regime may still be more beneficial.
Arjuna (Fictional Character): Krishna, what about private coaching classes? These days, coaching costs more than school itself. Can we get any deduction for that?
Krishna (Fictional Character): Arjuna, sadly, the Income Tax Act does not allow any deduction for coaching class fees. Whether it is for academic coaching, entrance test preparation, or private tuition, no tax benefit is available. In fact, many such services are also subject to GST, adding to the financial burden.
Arjuna (Fictional Character): Krishna, schools and colleges collect a lot of money. Do they also have to pay income tax on their income?
Krishna (Fictional Character): If educational institutions are registered under Section 12AB or under Section 10(23C) and follow the specified conditions, then their income is exempt from income tax. However, institutions not registered under these provisions, or those run as commercial ventures, are liable to pay income tax on their profits.
Arjuna (Fictional Character): Krishna, what should taxpayers and parents learn from this?
Krishna (Fictional Character): Arjuna, every parent works hard to provide quality education to their children, often sacrificing personal comforts. While planning their finances, they should also keep tax planning in mind. If they want to take advantage of deductions under Sections 80C and 80E, they should consider opting for the old tax regime. All eligible deductions should be claimed properly while filing returns.
Parents, on the other hand, must choose schools and institutions not just based on appearances but based on real educational value and their child's needs.
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