Tax Benefits on Children Education Allowance, Tuition Fees & School Fees

Education is one of the most important investments that parents make for their children. However, the cost of school fees and related expenses can be a significant financial burden for families. To alleviate some of this financial pressure and to promote literacy, the government offers a tax deduction on tuition fees paid for children.

Key Highlights

• Exemption available only under the old tax regime.
• The children’s education allowance and tuition fee deduction are separate claims that can be availed of together.
• Proof & Documentation: Taxpayers must keep fee receipts and, if required, course certificates to substantiate claims for deductions or exemptions.

What is Children Educational Allowance?

The Children's Education Allowance (CEA) is a type of allowance provided by employers to support the educational expenses of their employees' children. In India, it is common in government jobs and is also offered by some private sector employers. 

Under the old tax regime, this allowance is eligible for a small exemption, providing limited relief to salaried individuals. However, under the new tax regime, such exemptions are not permitted, as the structure is designed with lower tax rates but without most allowances. This means that employees choosing the old regime can claim tax relief on the Children's Education Allowance.

Applicability of Children Education Allowance

The exemption limit and applicability of Children Education Allowance are governed by Section 10(14)(ii) of the Income Tax Act, 1961, as explained below:

• Eligibility: Available to salaried employees for their children's education.
• Number of Children: Allowed for a maximum of two children.
• Exemption Limit:
  • Rs. 100 per month per child (i.e., Rs.1,200 per year per child).
  • Maximum for two children = Rs. 2,400 per year.
• Additional Hostel Expenditure Allowance: If the child is staying in a hostel, employees can also claim up to Rs.300 per month per child (a maximum of two children = Rs.7,200 per year).

Deduction on Tuition Fees under Section 80C

A parent can claim a deduction for the actual amount paid as tuition fees to a university, college, school, or any other recognized educational institution for the full-time education of up to two children. This deduction is specifically allowed for tuition fees only and does not cover payments such as development fees, donations, transport charges, or any similar expenses that are not eligible under Section 80C.

In a financial year, an individual can claim a maximum deduction of Rs.1.5 lakh under Section 80C. This includes tuition fee payments as well as other eligible investments and expenses like life insurance premiums, provident fund contributions, pension schemes, and more.

Eligibility of Tuition Fees Deduction Section 80C

Persons paying any sum/fees towards the education of their children can claim tax deduction under Section 80C, subject to the satisfaction of certain conditions, which have been enumerated below:

• Number of Children: Each parent can claim a deduction up to Rs 1.5 lakh for maximum 2 children separately. Therefore, if both parents are taxpayers, they can claim deductions for a total of 4 children.
• Maximum Limit: Rs 1.50 lakh every financial year. 
  Please note that the aggregate deduction amount under Sections 80C, 80CCC and 80CCD is restricted to Rs 1,50,000 for a taxpayer.
• Maximum Age: No maximum age.
• Tuition fee meaning: Only payment made towards the full-time education of the child. However, all these payments will not be categorised as tuition fees: Development fees, donation or charity, private coaching fee, other expenses such as hostel expenses, mess charges, library charges or similar payments.
• Institution: Any university, college, school or other educational institution situated in India.
• Mode of Deduction: The deduction is available only on actual payment and not on payable basis. For instance, if the fee is paid by the parent in April 2024 for the quarter ending March 2024, then the fee paid will be eligible for a deduction in FY 2024-25.

Non-eligibility of Tuition Fees Deduction Section 80C

• The deduction is not available for payment towards part-time courses.
• The deduction is not available towards payment made for school fees of self, spouse, brother or sister, father or mother or any other relative.
• Fees paid to a foreign university situated outside India are not eligible for this deduction.
   

How to Claim Tax Exemption for Children’s Education Allowance and Tuition fee Deductions?

Individual taxpayers can claim income tax exemption for children's education under Section 10(14) and tuition fees deduction under Section 80C.

For Salaried Individuals

Salaried individuals must submit the fee receipt issued by the schools or institutions to their employer by year end at the time of investment proof submission. They must also declare it in Form 12BB.

For Non-Salaried Individuals

A person who is not a salaried employee can claim only the tuition fee deduction under the VI-A schedule under Section 80C. The non-salaried taxpayers are not required to submit any bill while filing ITR. Nevertheless, they should keep the receipts as evidence to back their claims.

It is important to mention here that children's education allowance, which is part of the salary structure, and tuition fees are both different deductions. Therefore, these deductions can be claimed separately as per the limits discussed above.

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