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Karniti Part 1 - Taxation Educational exp. under income tax

CA Umesh Sharma 
on 10 September 2013

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In The Mahabharata on the Battlefield of Kurukshetra, the conversation between Lord Shri Krishna and Arjuna gave birth to the Holy book “Bhagwat Gita”

Wherein Arjuna asked many questions to Lord Krishna and Lord Krishna answered the questions with full justification.

Today a common man is facing many difficulties and he always strives to overcome these difficulties and problem. These problems may be financial or social and we always try to find answers for these problems.

Lord Krishna very easily and joyfully answered to the questions of Arjuna due to which Arjuna was happy and motivated to take further actions.

Keeping this conversation between Lord Krishna and Arjunas the foundation we will learn certain basic financial and tax matter. Let us try to get answers to our questions in a bit different and joyful manner. The character of Arjuna will be played by the common man or tax payer and the character of Lord Shri Krishna the Expert for giving solutions to all problems.

This is a small attempt to get answers to our queries related to tax matters in simple manner.

There is no intention of hurting anyone’s religious feeling and this is a small attempt of knowledge sharing in a simple way.

 

Welcome to GANPATI BAPPA God of knowledge!

Let’s do tax planning of educational expenses.

Arjuna: Lord Krishna, today is Ganesh Chaturthi an auspicious day which is celebrated throughout the country very cheerfully and faithfully. At various social places many Ganesh Mandals celebrate this festival thereby giving message of unity, brotherhood in the community. But Lord Krishna,in the urge of making the “Lord of Knowledge” Ganesha happy and satisfied, devotees donates lakhs of rupees and further Parents invest their lifetime earnings for child's education for their bright future.

Lord Krishna: O! Arjuna, in life the process of knowledge gaining should be everlasting.May Lord Ganesha’sGod of knowledge bless all devotees to gain knowledge and expertise in theirfield.

Arjuna: But, Krishnawhether there are any benefits or deduction available in the Income Tax Act for Tax payer and devotee for taking education, higher education and incurring such type of expenditure?

Lord Krishna: Good! Arjuna what a combination you have made of Ganesh Utsav i.e. Festival of knowledge, Educational expenses and the deductions in the Income Tax Act. Come lets discuss about the provisions in Income Tax Act related to the expenditure made on education and related matters!

Arjuna: Lord Krishna, is there any provisions for educational expenses incurred by salaried person?

Lord Krishna: Arjuna First of all keep in mind that tax planning of the salaried person can be made by mutual understanding of employer and employee. The following are exemptions and or deductions which can be claimed by a salaried person from his salary:

Research allowance (i.e.allowance granted for encouraging academic research in educational and research institutions) if given along with his salary by the employer. Such allowance will be exempt i.e. there will be no need to pay tax on such income, but the details of expenditure actually spent on researchshould be kept on record along with the salary details by both the employer and employee.

Let’s understand this with a simple example: Research allowance of Rs. 100,000/- is given to the employee and employee makes an expenditure of Rs. 90,000/-. Tax will be levied on unspent balance of Rs. 10,000/-.

Arjuna: Oh! Good. Due to this provision,salaried people who want to secure further education can get income tax exemption with the help of his employer and employer will also get the quality work from his employee.

 

Lord Krishna: Similarly small benefit is also being given to salaried person, for the expenditure made on the educational fees of the children.If Children education allowance is provided in the salary structure then Rs. 100/- per month per child is exempt but this can be claimed for maximum of two children.Alsohostel expenditure of children of Rs.300/- per month per child up to maximum of two children is exempt from tax. But the documentary proof of such expenditure should be given by the employee to the employer.

 

Arjuna: But, Krishna In today’s world it is difficult to find a good school having fees of Rs. 100/- per month.Government should increase the amount of exemption granted so that the burden of children educational expenditure will be reduced. No need to tell you that today education is becoming a business. You know everything.

 

Lord Krishna: Very well said, let’s see when government will change the amount of exemption.

 

Arjuna: Hmm.. Tell me Krishna does a Businessman gets any benefit on educational expenditure incurred by him or for his business?

 

Lord Krishna: Professionals such as Doctors, Architects, and Chartered Accountants etc. get the deduction for the expenditure on studies or higher studies.

Similarly businessmen can take deduction for expenditure on books required in business; educational conferences, educational travel etc. Expenditure made during Ganesh Festival can also be taken as deduction provided it is necessary for the business.Always keep in mind that the expenditure incurred is necessary for business or not will be considered first. The Ganesh Festival expense can be considered as expenses for staff welfare.

Similarly expenses for construction and running of school and other related expenses of the employee’s children paid by the employer are allowable expenses.

 

Arjuna: Great, so now the businessman will not hesitate to make expenditure on education if these types of deductions are provided!

 

Lord Krishna: Every Taxpayer can also avail deduction for tuition fees paid of children (maximum two children).The said deduction can be availed under section 80C wherein maximum deduction of Rs. 100,000/- can be availed.

 

Arjuna: But Krishna, under Section 80C there are many other deductions like Life Insurance, Public Provident Fund,home loan installment etc. due to which the limit of Rs. 100,000/- is easily arrived at. Actually there should be different provision for educational expenditure. Hope Lord Ganesha will remove this obstacle away from the path of his devotees.

 

Lord Krishna: There is one more provision for individuals under section 80 E on educational loans taken. Individuals can avail deduction of payment of interest on loan taken for higher education from a bank or any other financial institution. The deduction of Interest on higher educational loan can be availed in the initial year of payment of interest andup to a maximum period of seven years. He may take this loan for himself or for his relatives for eg.spouse, daughter, son etc. But remember this deduction is only for interest amount and not for principal amount.

 

Arjuna: Which benefits are available if donations made to educational institutions?

 

Lord Krishna: Section 80G is also one more section wherein donation to registered educational trust or charitable trust is allowed as deduction.

But assessee have to adhere to the requirements of the Income Tax Department for claiming deduction such as keeping record of 80G certificate number, Permanent Account Number (PAN), Receipt etc.

 

Arjuna: Great,a businessman or tax payer can educate poor,orphan, needy children by giving donations. So on this auspicious day of Ganesh Chaturthi we had a nice discussion on educational expenditure, interest payment on loan for higher studies and various other provisions of income tax.

LokmanyaTilak,started the common gathering this festival and said “Freedom is My Birth Right.”

Today on this occasion we can say that “Education is my Birth Right.” and as you knowa knowledgeable person is respected everywhere.

 

Lord Krishna: Knowledge is the most valuable thing that a man can possess and to gain knowledge money is required.If the child has capabilities, parents always try to give them the best of education.

Students should remember this and after getting educated they should not forget the pains taken by their parents for educating them and always take care of them. Similarly we should also thank our teacher. See in “KaunBanegaKarodpati Part 7” Mr. Amitabh Bachhansaid “Keep Learning, Keep Winning.”

Knowledge should always be used for the betterment. It should not be used for deceiving anyone. Today, many people earn money by taking advantage of ignorance of others.    

 

“MAY LORD GANESHA BLESS ALL HIS DEVOTEES AND REMOVE ALL OBSTACLES FROM THEIR PATH.”

CA UMESH SHARMA


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