How Parents Can Save Taxes Using Children's Education Allowances

The rising cost of school fees and other education costs could be a significant financial burden for parents. It’s also a long-term financial commitment for parents to secure the academic future of their children. To ease the burden and promote the education of children, the government offers several tax benefits to parents on the expenses towards their children's education expenses.

Under various sections of the Income Tax Act, 1961, salaried taxpayers can claim tax benefits for the children's education allowance. Additional benefits on payments towards tuition fees can also be claimed by both salaried and non-salaried taxpayers.  

Many employers provide a monetary benefit to employees to support the education expenses of their children. This financial support, generally known as the children's education allowance (CEA), often forms a part of an employee’s salary.  

It’s important to note that the income tax benefits towards children's education allowance can only be claimed by salaried employees under the old tax regime. Taxpayers, opting for the new tax regime to file their income tax return (ITR), can’t claim this benefit.  

Education allowance deductions can be claimed under Section 10(14) of the Income Tax Act. Taxpayers can claim deductions up to Rs 100 per month (Rs 1,200 per year) per child. These deductions can be claimed for a maximum of two children.

Additionally, salaried taxpayers can also claim deductions up to Rs 300 per month (Rs 3,600 per year) per child, maximum up to two children, towards hostel fees.

So, under this provision of the I-T Act, salaried taxpayers can claim a maximum deduction of up to Rs 4,800 per child (up to Rs 9,600 for two children) in a financial year.  

However, it’s important to note that to claim the children’s education allowance, the amount should be a component of the taxpayer’s salary.

Apart from the children’s education allowance, taxpayers can also claim additional benefits on payments towards tuition fees and education loans under Sections 80C and 80E, respectively.  

Taxpayers can claim a deduction of up to Rs 1.5 lakh in a financial year for the tuition fee payments for their children. This benefit can only be claimed for up to two children.

However, the deductions can only be claimed for payment of tuition fees to accredited and recognised schools, colleges and universities in India.

It’s important to note that Section 80C benefits only apply to tuition fees and not other charges like transportation, development fees, or donations.

Section 80E Deduction On Interest Payment For Education Loans

Taxpayers can also claim tax benefits on payments towards an education loan availed for their children’s higher education. Deductions up to 100% of the interest paid on the education loan can be claimed and there is no upper limit. These benefits apply to loans taken for higher education, both in India and abroad.  

Taxpayers are required to submit the fee receipt issued by the schools or educational institutions of their children to their employer at the time of the submission of investment proof to claim the benefits under Sections 80C and 10(14). These deductions should also be mentioned in Form 12BB, which is used to declare tax-saving investments.  

Non-salaried taxpayers can only claim deductions for tuition fees paid for their children’s education. While filing ITR, the taxpayers are required to submit the fee receipts issued by the schools.