Tax Benefits available on Children Education Allowance, Hostel allowance, Tuition fees

Updated: As amended in finance act 2020

As per section 10(14) of  Income-tax, children education allowance and Hostel Expenditure Allowance are eligible for deduction available to individuals employed in India.

The following facilities is taxable only in the hands of specified employees* [See note]

For other educational facility:

Note:  Specified employee means an employee whose monetary income* under the salary exceeds Rs. 50,000 or a director-employee, or an employee who has a substantial interest (i.e. beneficial owner of equity shares carrying 20% or more voting power) in the employer-company. (*Monetary Income means Income chargeable under the salary but excluding perquisite value of all non-monetary perquisites).

Deductions under section 80C of IT act:

A salaried individual who opts for the old tax rule for assessment of tax for the FY 2020-21, income tax slabs remains to him/her the same as the previous financial year 2019-20 (AY 2020-21).  Individual parent or guardian or sponsor can claim deductions on the amount paid as tuition fees to a university, college, school or any other educational institution under chapter VI-A section 80 C. The deduction is available only for full-time education courses that include a nursery school, crèches, and playschools. Each parent can claim a deduction of up to Rs.1.50 lakh separately every financial year.  The aggregate amount of deduction under section 80C, 80CCC, and 80CCD shall not exceed INR 1, 50,000 for the individual parent. An Adopted Child’s school fees are also eligible for deduction. The deduction is available only for students studying in the institution, college, or university situated in India. The deduction can also be claimed for students studying in a foreign university-affiliated institution which is situated in India. The deduction is available to a maximum of 2 children for each individual.  In other words, a maximum of 4 children’s tuition fee deduction can be claimed by two parents, i.e. 2 children by each parent.

Tax deduction on Interest paid on Education Loan:
An individual can claim income tax deduction on interest paid on education loan availed for self, spouse or his/her children u/s 80 E of I.T. Act. The guardian appointed by the court for a minor student is also eligible for income tax deduction on interest paid on education loan under the same section. One more benefit is that there is no upper limit for claiming deduction either on the amount of interest paid or rate of interest paid. The deduction can be claimed up to 8 years or closure of the loan whichever is earlier. If the interest is paid during the moratorium period, the time limit of 8 years begins from the date of the first repayment of interest on the loan. However, the tax benefit is restricted for education loan availed from the bank, notified financial or charitable institutions. The education loan availed from the employer, family and friends does not come u/s 80E. The deduction under section 80E is also allowed for education loan availed for studies abroad.

Source: Income Tax Department

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