There are three types of tax benefits on Children Education Allowance, Tuition fees payment & School fees Payment.
- Deduction under section 80C for School/College Fee Payment [Section 80C]
- Exemption for Children Education & Hostel Expenditure Allowances [section 10 (14)]
- Perquisite Value in Case the Employer is Providing Free or Concessional Education [Section 17(2)(iii)]
Deduction of payment made for School/ College fees under 80C
Deduction for payment of Education fees paid for the children can be claimed under section 80C. The deduction can be claimed of the payment made during the financial year but the maximum deduction allowed is Rs.1,50,000. There are many other deductions which can be claimed under section 80C are as follows:
- Deduction for investment in National Saving Certificates (NSC’s)
- Deduction for investment in Fixed deposit account notified by Central Government
- Deduction for repayment of home loan
- Deduction for investment in PPF account
- Deduction for investment in mutual funds
- Employee’s contribution to Recognized Provident Fund
- Investment in 5 Year time post office time deposit.
The condition prevails that inclusive all the above and tuition fees, deduction under 80C is limited to Rs.1,50,000.
Tuition fees Eligibility for tax deduction
Persons who wish to claim tax deduction on tuition fee need to satisfy following criteria
- Only individual can claim tax benefits, companies and HUF are eligible to claim deduction.
- Limit: The maximum amount of deduction under 80C is Rs 1.5 lakh per financial year for each parent. This limit is for aggregate of deductions under 80C, 80CCD, 80CCC.
- of children: the deduction can be availed only for two children per assessee i.e. if both parents are taxpayers then deduction can claim for 4 children.
- Child Education only: Deduction is permitted only to the extent of tuition fees paid for educating children of the taxpayer. Fees paid for anyone else is not allowed.
- Courses: The deduction can be claimed for the full time courses only. These are school fees, fees for graduation post graduation i.e. fee of part time courses are not allowed as deduction.
- Affiliation: The school, college or university must have necessary affiliations and it must be situated in India.
- Adopted Child’s tuition fee is also eligible for deduction.
- Payment based deduction: Deduction is allowed on actual payment of fee i.e. if fee of March 2012 is paid in April 2012 then deduction is allowed in FY 2012-13.
Expenditure not allowed as deduction u/s 80C
The following expenses are not eligible for deduction under section 80C but are related to education only:
- Payment of transport Charges
- Payment of Private coaching Fees
- Late fees is not eligible for deduction
- Payment of fees paid outside India
- Hostel expenses, mess charges and library charges
- Development Fee or donation
- Payment of tuition fees of self, spouse, brother or sister, father or mother.
Exemption for Children Education & Hostel Expenditure Allowance
Exemptions under section 10 (14), provided to individuals are:
- Children Education Allowance: Rs 100 per month per child up to a maximum of 2 children
- Hostel Expenditure allowance: Rs 300 per month per child up to a maximum of 2 children
Perquisite Value in Case the Employer is Providing Free or Concessional Education
As per section 17(2)(iii) of income tax act, if the employer is providing free or concessional education to the children or any member’s* of his employee’s household, it is considered as a perquisite and should be added to the total income the employee as calculated by following Rule 3(5) of the income tax rules.
* Members of the household include:
- children and their spouses
- Any person dependant on employee
Rule 3(5) of the income tax rules states that:
Case 1- When Educational Institute is not owned/ maintained by the employer
The value which is considered as perquisite in this case will be the actual amount of expenditure spent by the employer on education and should be taxed accordingly.
Case 2 – When the educational institute is owned/ maintained by the employer
The taxable value of perquisite in this case would be the cost of education in a similar institution in or near by that locality. If the employer, in addition to running an educational institution for providing free education to the household of employees, also bears the cost of books uniform etc than such expenses should also be added for determining the cost per child either separately in respect of each child or otherwise on a pro data basis.
Case 3 – When the educational institution is influenced by the employer
In case the free/ concessional education is provided in an educational institution by the reason of the goodwill of the employer or employer pays the educational institution in lump sum for the students of the employee get the priority or preference in getting admissions (like a school sponsored by the employer), in such a case the taxable value of perquisite would be the cost of such education in a similar institution in or near the same locality.
Proviso to Rule 3(5)
As per the proviso, only in Case 2 and Case 3 as discussed above, the rule shall not be applicable i.e. no taxable value of perquisite if the cost of such education per child(irrespective of number of children) does not exceed Rs.1,000 per month. This exception is only applicable for education of children not applicable for education of other member of the employee’s household i.e. there will be taxable value of perquisite if education is provided to member’s of household irrespective of cost of such education. AND if cost of education per child per month exceeds Rs.1000 then total cost of education will be taxable value of perquisite.
Example: Mr.A is an employee has two children ‘P’ and ‘R’ and the cost of education per month of ‘P’ is Rs.990 and the cost of education of ‘R’ is Rs.1110 per month. The taxable value of perquisite would be:
|Value of taxable perquisite in respect of|
|Total value of taxable perquisite||Rs.1110|
Deduction from the value of perquisite as calculated
If the employer has recovered any amount from the employee in respect to education provided, then such amount shall be reduced from the value of perquisite as calculated in accordance with the Rule 3(5).
Important Points to be noted:
- If the employer has provided free education/ training to the employee, there shall be no perquisite.
- If the employee himself has made arrangement for his own education and the employer has reimbursed the amount of such education, it shall be fully exempt.
- If the facility is taken by employee himself for the education of members of the households including children and the employer has reimbursed the expenditure incurred on such education, entire amount should be taxable in case of all employees under section 17(2)(iv).
- If the employer has given any scholarship to the children of the employee on Merit basis then it will not be taxable, but if the scholarship is given to the children not on merit basis but because of the employment of the parents then it would be considered to be income of the employee and should be taxed accordingly.
- School fee paid directly by employer to school is taxable.
To claim exemption under section 10(14) for children education allowance and deduction for payment made for tuition fee under section 80C, you need submit the receipt issued by schools for the payment made during the financial year to the employer and also mention details in Form 12BB before submitting proofs of investment at the end of the financial year (only for salaried individuals) and any other than salaried individual have to claim deduction under Chapter VI-A Schedule.
About the Author
Arpit Goyal is pursuing CA and B.com & also working as an article assistant in Gurgaon. He has an immense interest in Taxation. He loves to use technology to spread knowledge about taxation & accounts.