Arjuna (Fictional Character): Krishna, as it is the time of schools and colleges reopening, admission of students are going on everywhere. All parents want that their children should be educated from the best school/college. But for the sake of good education, a lot of money is required. So is there any benefit available to the taxpayers in Income Tax Act for such expenses incurred?

Krishna (Fictional Character): Arjuna, you are right. Nowadays, the expenditure on education has been increased enormously. Everybody is acquainted with the recent incident of NEET exams. Nowadays financial and psychological pressure on parents for admission in school/college is increasing. Parents have to spend money on tuition fees, admission fees, uniform, fund, transportation fees, books, etc. There are some provisions for these expenditure in Income Tax Act. The taxpayers should understand these provisions and take advantage of them to reduce the burden of these expenses.

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Arjuna (Fictional Character): Krishna, among all these fees on which fees does the taxpayer get deduction?

Krishna (Fictional Character): Arjuna, the expenses are so many but the Income Tax department gives deduction only for tuition fees under section 80 C. As per the provision of section 80 C deduction can be claimed for tuition fees paid to university, school, college or other educational institution situated in India and this deduction can be availed by an individual for any of his two children. Under section 80C many other expenses like LIC premium, principal of housing loan, PPF, etc. are covered and its limit is only Rs. 150,000/-. This deduction is available only on payment basis. Also this benefit is available only for full time courses. Similarly deduction is not allowed on building fund, donation, transport, hostel, mess, library, late fees, term fees, part-time courses, private tuition fees, etc. expenses.

Arjuna (Fictional Character): Krishna, what will be the effect if a salaried employee receives an allowance for his children’s education from his employer?

Krishna (Fictional Character): Arjuna, if an employer gives children education allowance then the employee can claim exemption for maximum two children of Rs.100 per month per child from such allowance. This means under this he can get exemption of only Rs. 1,200 per child per year. Similarly, if the Hostel expenditure allowance is given then exemption of Rs 300 per month per child for two children is given under Income Tax. This means annually only Rs. 3600 per child can be claimed as exemption.

Arjuna (Fictional Character): Krishna, if loan is taken for education what will be its effect in Income Tax?

Krishna (Fictional Character): Arjuna, if a person takes educational loan for himself, spouse or children for higher education from bank or financial institution, etc. he will get deduction for interest on such a loan for 7 years under section 80 E of Income Tax Act.

Arjuna (Fictional Character): Krishna, what about deduction of private coaching class fees?

Krishna (Fictional Character): Arjuna, very well said. Nowadays, the expenditure incurred on coaching classes is more than the expenditure incurred on schools. But in income tax there is no deduction on fees of coaching class. Furthermore, on some educational courses service tax is levied.

 Arjuna (Fictional Character): Krishna, is income of school / colleges chargeable to Income Tax?

Krishna (Fictional Character): Arjuna, if Educational institutions are registered u/s 12AA of Income Tax and conditions are fulfilled then Income Tax is not charged on its income. Similarly, the income of the institutions registered under section 10(23C) will be exempt from income tax. Private educational institutions, institutions set-up by companies or institutions not registered under section 12 will be liable to pay income tax on its income.

Arjuna (Fictional Character): Krishna, what should taxpayers learn from this?

Krishna (Fictional Character): Arjuna, every parent struggles to give their child best of education. They make provisions for that according to their income capacity. At that time provisions of Income Tax are not considered. But while filling return of income, taxpayer should take the benefit of all the possible deductions. Similarly, the Government should make changes in the limits prescribed for exemptions and deductions as every year there is an increase in the educational expenses. It is necessary to demand this from the government. Similarly, now-a-days it is not clear that whether education has become a business or business has become education. Therefore parents should not go only on the appearance and evaluate the actual conditions and then select the school and college.

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Tags : CA Umesh Sharma (101) Section 80C (120) Tax Planning (49)

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