Is a Higher Educational Fee Exempted From The Tax in India?

Giving the best education to their child is an aspiration of every parent. Some of them work day and night to pay for their children’s huge tuition fees so that their children can receive the desirable education necessary for a successful life. Quality education is the backbone of an economy, as it can shape today’s youth into visionary leaders who can bring change to this world. Therefore, it is vital for every human being in this world. Those who can afford it are the luckiest ones as the soaring cost of education has somehow become a financial burden for many middle-class and low-income families. The most expensive courses in India are engineering courses (B. Tech, BE, M. Tech), Management Courses (MBA, BBA), Hospitality courses, Medical courses (MBBS), etc. The fees of these courses can reach a peak of INR 10 lakhs per annum or more.

All these factors instil a sense of worry among parents, and therefore, they start saving early to meet their child’s educational requirements. Besides investing their money in FD’s or any other investment schemes, the parents should also be aware of the tax benefits to avail themselves of these investments. Not only investments but also expenditures, like tuition fees, are allowed a deduction under the Income Tax Act. The following article provides detailed information regarding education tax works for higher education.

Tax in India - Deduction on Tuition fees as per Section 80C

Section 80C of the Income Tax Act, 1961 provides several tax benefits concerning deductions available on various investments and expenditures. The maximum deduction that can be availed under this section is INR 1.5 lakhs. Section 80C is only applicable for Individuals taxpayers and HUFs (Hindu Undivided Families), making companies or partnership firms ineligible to avail them.

The tuition fee is one such expenditure on which a tax benefit of up to 1.5 lakhs can be availed. It is important to note that these tax benefits can only be available only when the tuition fees are paid within India. Therefore, students studying abroad cannot claim a deduction on tuition/education fees under Section 80C. Let’s look at an example given below to understand it better –

Mr. X, an employee of a private company, is a father of two. He pays INR 1 lakh per annum towards his daughter’s college fees and INR 24000 for his son’s school fees. He spends a total of INR 124000 on the education of his children. However, with the help of Section 80C, he can claim a deduction on this amount and save tax. Thus, this section provides great relief to the parents who spend heavily on their children’s education.

Eligibility Criteria for Tax Deduction?

• The taxpayer: Only Individuals assessee can claim income tax exemption under Section 80C. Partnership firms, HUF’s, and Companies are not eligible to avail tax benefits on tuition fees.
• Children: The income tax exemption can be claimed only when the parent is paying for two children’s education. Thereby, if you have more than two children, the deduction will be allowed only for any two children’s tuition fees.

Please note – If both the parents are taxpayers, i.e., both husband and wife pay taxes, in such case, each of them can claim for tax deductions separately. For example, - Mr. X and Mrs. Y are both salaried individuals who have four children. In this case, Mr. X can avail a deduction on tuition fees of any two kids, and his wife, Mrs. Y, can claim a deduction on the other two children’s education fees.

• Self-Education Expenses: The provisions of this Section 80C are only applicable when you are spending your income specifically on tuition fees of your child. This means that as a parent, you are not permitted to claim any deduction on fees paid towards educating yourself or anyone else (spouse, relatives, etc.) other than your child.
• Maximum Limit: As mentioned earlier, the maximum deduction of up to INR 1.5 lakhs can be availed. However, if you are also allowed tax deductions under other sections, such as Section 80CCC and 80CCD, in that case, the aggregate tax deduction amount should not exceed INR 1.5 lakhs.
• Course: The tax benefit under this section can only be availed if the student is enrolled in a full-time course. Full-time courses consist of graduation, post-graduation courses. No deduction is allowed on tuition fees paid for part-time or distance education courses.
• Private Coaching/Tuition fees: Deductions are not allowed for tuition fees paid for coaching institutes or any other private tuition. Only the fees paid to university, college, school or any other educational institutes that provide full-time courses are covered.
• Affiliation: The university or college where the child is studying should be recognised and should have required affiliations. Apart from that, a college located in India but is affiliated with a foreign university is also eligible.

What is not allowed?

1. Development Fee: If you have donated a certain amount to an educational institute, that amount will not be considered for income tax exemption.
2. Other expenses: All other expenses, such as transport fee, library fee, Hostel charges, expenses on books and stationery, Canteen expenses, etc., are not eligible for deductions under Section 80C.
3. Late Fee: If the fees are paid late, it would be considered a non-allowable expense.
4. Term Fee: Besides late fees, the payment of the term fee is not covered as well.
5. Fees paid to a foreign university, which is not situated in India, are also not eligible for deduction.

Hence, only the actual fee paid annually is eligible for deduction. Many institutes charge an additional fee such as sports fee, medical fee, building fee, examination fee, etc. all these charges are not eligible for deduction under Section 80C.

Tax Benefits – Children Education Allowance and Hostel Allowance

1. Children Education Allowance:

Under this, you are provided with INR 100 per month or INR 1200 per year for each child. The allowance is available for two children only, and overall up to INR 2400 can be claimed annually. Section 10 (14) of the Income Tax Act deals with these claims, which states that to claim the allowance, your expenses should be incurred within India.

2. Hostel Allowance:

INR 300 per month or 3600 per year is given as Hostel allowance for each child. Similar to the Child Education Allowance, this allowance is restricted to only two children. In a year, you can claim up to INR 7200, subject to Section 10(14) of the Income Tax Act.

How to claim tax deductions for the Children’s Education Allowance and Hostel Allowance?

The salaried individuals can claim these allowances by submitting fee receipts provided by schools or colleges to their employers. Along with that, they should also mention it in the form of 12BB before submitting it.

Please note that the Children’s Education & Hostel Allowance and Tuition fees of the children can be claimed separately as they both are different deductions.

Also, always keep your child’s tuition fee receipts under safe custody.

The bottom line – Total Saving through Education tax

The exempted income equals INR 159600, after adding CEA, Hostel Allowance, and Tuition fee limit, i.e., 1.5 lakhs. Hence, you can avail of the total benefit of INR 159600. If you fall under a 5% tax slab, you can save up to INR 7980; for 20%, the savings can amount to INR 31,920, and under a 30% tax slab, you can save INR 47,880 annually. Both husband and wife can claim these exemptions if they both are earning.

FAQs

Q. Is the deduction under Section 80C only allowed for tuition fees paid for Higher education?

Ans. No. Not only colleges or universities, but fees paid to schools, playschools, Nursery schools, and crèches are also eligible for deduction.

Q. Can we avail of the deduction for the adopted child’s tuition fees?

Ans. Yes, tuition fees paid towards the education of your adopted child is also eligible for deduction.

Q. Can we claim Children’s Educational Allowance for the adopted child?

Ans. Yes, an adopted child is eligible for Children’s Educational Allowance.

Q. How can non-salaried/self-employed individuals claim deductions for tuition fees paid?

Ans. The deductions can be claimed under schedule VI-A.