CA Umesh Sharma
Arjuna (Fictional Character): Krishna, June is here, Schools / colleges soon will reopen. Therefore Parents are busy in their children’s school preparation. Today, tell us in detail about education expenses and provisions relating to it under Income Tax Act.
Krishna (Fictional Character): Arjuna, June month is the period of expenditure on schooling for the common man. Many parents make provisions for such expenditure in advance. Further to choose a good school is also a cumbersome exercise nowadays. Along with school fees there are also expenditures on books, uniform, classes, transportation, etc. which parents have to bear. So there are many expenses but, deduction is for specific expenses only in Income Tax, why so? This is an important issue. Because of lack of deduction under Income Tax Educational expenses are also becoming cumbersome. Related to this there are various provisions under Income Tax Act. Let’s discuss them.
Arjuna (Fictional Character): Krishna, is income of school / colleges chargeable to Income Tax?
Krishna (Fictional Character): Arjuna, Schools / colleges collect different types of fees like tuition fees, admission Fees, uniform, funds, exam fees, transportation fees, etc. from parents. If Educational institutions are registered u/s 12AA of Income Tax and conditions are fulfilled then Income Tax is not charged on its Income.
Arjuna (Fictional Character): Krishna, among all these fess 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 80C 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. come and its limit is only Rs. 150,000. On one side all receipts of income of school get exemption under income tax, but for schooling expenses deduction is given only for Tuition fees, why so? For this the school may include all other fees in tuition fees and Income tax department should increase the Limit of Section 80C or make provision for such deduction of educational expenses.
Arjuna (Fictional Character): Krishna, what will be the effect if a salaried employee receives children education allowance 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. From last 18 years no change has been made in this limit of Rs 100 and Rs 300. But in these last 18 Years expense has increased many fold. Why the Income tax department is not making any changes in this only God knows.
Arjuna (Fictional Character): Krishna, what about deduction of private coaching class fees?
Krishna (Fictional Character): Arjuna, very correctly said. Nowadays, lots of money is spent on private coaching class fees. 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, 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. Before Financial Year 2006-07 deduction for repayment of principal amount was also allowed under this section to the tax payer. Now deduction is given only for Interest expense for 7 years.
Arjuna (Fictional Character): Krishna, what should a parent learn from this?
Krishna (Fictional Character): Arjuna, every parent struggles to give their child good 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 all 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. For this it is necessary to demand it in front of the government. Similarly, now-a-days education has become business for many. Therefore parents should not go only on appearance and see the actual conditions and select the school and college. Further expenditure on education has increased and deductions in income tax are very less. Who will resolve these unanswered questions of Educational Expenditure and Income Tax – the children, parents or the school? It is very important to give a thought on this.