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Financial Planning
The tax-savvy parent’s guide to funding education
Discover simple ways in which you can invest in your child’s education while reducing your taxable income and claiming different tax benefits in India.
Key takeaways
- Investing in child-specific investment options, such as Sukanya Samriddhi Yojana and certain investment-cum-insurance plan, can reduce your tax burden.
- Any interest paid on an education loan for your child's higher education can also be claimed as a deduction under Section 80E.
- The Income Tax Act 1961 offers a deduction on tuition fee under Section 80C for up to two children.
- Under Section 10(10d), any amount received on a child's education plan is tax-free on maturity.
As a parent, it is natural to want to give your child the best you can. This stands true for their education, too. Most parents usually save for their child's education. However, these days, various investment opportunities can be availed for your child's education. With the steadily rising costs of schooling, coaching, and higher education, it's important to manage these expenses efficiently.
Here's some good news for you – the Income Tax Act offers several tax benefits that can be used to reduce your tax burden while supporting your child's academic endeavours. There's a lot to explore from the deduction in tuition expenses and tax benefits of education loans. Understanding these benefits brings you closer to understanding how to plan and budget for your child's education over the years.
In this article, you will be introduced to the tax benefits of investing in your child's education. This will help ease your tax burden while securing your child's educational future.
Consider investing in ELSS
An Equity Linked Savings Scheme (ELSS) is a mutual fund that allows you to invest for long term goals like building your child's education fund. It comes with a minimum lock-in period of three years. Any contribution made to it is eligible for a deduction of up to ₹1.5 lakhs annually according to Section 80c of the Income Tax Act. So, it is a tax-efficient investment option. Any contribution to it can be customised according to your budget and by subscribing to a Systematic Investment Plan (SIP), your monthly contributions can be automated.
Tax benefits on a child's education plan
Consider investing in a Unit Linked Insurance Policy (ULIP) to create a financial cushion for your child's educational future. One tax benefit you can claim is a deduction of up to ₹1.5 lakhs per annum on the premium paid for it. According to the provisions of Section 10(10d) of the Income Tax Act, the amount received on the policy's maturity is tax-free albeit with some conditions.
Invest in Sukanya Samriddhi Yojana
If you have a daughter under 10, consider investing in a Sukanya Samriddhi Account. This government-backed investment scheme allows you to keep your money locked in until your daughter is 18 years old. A maximum contribution of up to ₹1.5 lakhs can be made annually under this scheme. You can also claim a tax deduction of up to ₹1.5 lakhs can be claimed under 80C of the Income Tax Act.
Other tax deductions
Any tuition fees paid to an educational institution such as a school, college, university, etc, can be claimed as a deduction of up to ₹1.5 lakh per annum under Section 80C of the Income Tax Act. You can claim this deduction for up to two children and are eligible only for the tuition fees paid. It doesn't include transportation costs, donations, etc.
- If you obtain an education loan to fund your child's higher education, a deduction can be claimed under Section 80E of the Income Tax Act on the interest paid. Though this is not a direct benefit, this deduction can help reduce the cost of financing your child's education.
- If you are a salaried employee, you can claim a deduction of ₹100 per month per child for up to two children as education allowance. ₹300 per month per child for up to two children as hostel expenditure allowance can also be claimed as a deduction.
- Any scholarship your child receives is fully exempt from tax under Section 10(16) of the Income Tax Act.
Important Note: You can qualify for any of these deductions only if you choose the old tax regime.
Conclusion
Investing in your child's education is a long-term commitment involving financial planning. These days, a variety of tax benefits and exemptions can be availed while doing this. Whether you are claiming a tax break on an education loan or investing in child-focused savings plans, these steps promote informed decision-making. Also, they reduce your financial pressure, making it easier to focus on what's important – your child's growth and learning. Worrying about your child's education is natural, but with a proper investment plan, you can ensure their education will never be compromised. Contact a professional advisor or financial consultant to make better financial decisions today.
Disclaimer: This article is intended solely for informational purposes. The views expressed in this article are personal. Axis Bank and/or the author shall not be liable for any direct or indirect loss or liability incurred by the reader arising from reliance on the content herein. Readers are advised to consult a qualified financial advisor before making any financial decisions. Axis Bank does not endorse or guarantee the accuracy of any third-party content or links included in this article.
Mutual Fund investments are subject to market risk. Please read all scheme-related documents carefully. Axis Bank Ltd. is acting as an AMFI registered MF Distributor (ARN code: ARN-0019). Any purchase of Mutual Funds by Axis Bank’s customer(s) is purely voluntary and not linked to availment of any other facility from the Bank. This content is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future returns. Readers are advised to consult a qualified financial advisor before making any investment decisions. Terms and Conditions apply.
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