It is natural for parents to want their children to excel. For this reason, they invest in their education and take good care of their health.
However, many may not know they can claim tax deductions on expenses for their children’s education and medical needs. This article will explore the costs and savings parents can claim for tax benefits.
Tuition Fees: If parents are employees, they can claim a tax deduction for the tuition fees paid during the academic year.
Tuition fees paid for the education of children are exempted under Section 80C of the Income Tax Act.
A maximum tax deduction of Rs. 1.50 lakh per year can be claimed. However, this exemption only applies to education within India (in schools, colleges, and universities) and tuition fees.
This tax exemption covers tuition fees paid for two children and does not apply to other expenses such as part-time studies, international courses, transportation, etc.
Education Loan Interest: Under Section 80E, parents can claim a tax exemption on the interest payable on education loan EMIs if their children intend to pursue higher education in India or abroad. The amount of interest is not limited. This provision mainly benefits high-income families.
Health Care Expenses: Under Section 80D of the Income Tax Act, a deduction of up to Rs. 25,000 is allowed on health insurance premiums taken for children.
Additionally, a sub-limit of up to Rs. 5,000 can be claimed for child health check-ups. Exemptions can also be claimed for medical treatment and maintenance expenses of children with disabilities under Section 80DD.
Section 80DDB provides exemptions for the treatment of certain diseases, such as AIDS, neurological diseases, and malignant cancers.
The exemption available under Section 80DD depends on the extent of the disability, with a maximum exemption of Rs. 75,000 for disabilities over 40% and Rs. 1,25,000 for severe disabilities.
Sukanya Samriddhi Yojana: The government has introduced the ‘Sukanya Samriddhi Yojana’ for girls below 10. Under Section 80C, tax can be saved on a deposit of Rs. 1.50 lakh, and tax-free returns can be availed on withdrawal.
This scheme is mainly meant for higher education and the marriage of the girl’s child, and the investment in the girl’s name must be made until age 21.
The interest rate on this scheme is currently 8.20%, which is higher than any other government-guaranteed scheme for children. This scheme allows a minimum deposit of Rs. 250 per year and a maximum of Rs. 1.50 lakh.
Assets to Children: Parents can transfer cash or assets they own to children aged 18 or over. The interest earned on that cash and the rental income earned on the property is then considered the child’s income.
This can help parents to move into a lower tax slab and save tax, especially if they have saved money for their children’s higher education and marriage.
Educational Expenses: Under Section 10 (14) of the Income Tax Act, employed and salaried taxpayers are entitled to specific allowances as part of their Cost to Company (CTC) to cover their children’s educational expenses.
They can avail of a tax deduction of up to Rs. 2400 per annum at Rs. 200 per month for a maximum of two children. A monthly tax deduction of up to Rs. 300 can also be claimed for hostel expenses for a maximum of two children.