23.  How to Save Tax on Educating Your Children

The Finance Act, 2005 inserted a new Section 80C, effective from FY 2005-06, provides a straight deduction in the computation of taxable income in respect of life insurance premium, deferred annuity, contributions to public provident fund and other provident funds, subscription to certain equity shares or debentures, and sums spent or deposited during the financial year as tuition fees for an two children of the tax payer. The aggregate of the amounts paid or deposited in the previous year, however, should not exceed ` 1 lakh.

One of the special features of this deduction as per Section 80C is that many sectoral caps have been removed.

Thus, one of the great advantages for many tax payers as per Section 80C is that deduction would be available in respect of tuition fees payable for any two children of the tax payer up to ` 1 lakh without any necessity or compulsion to invest in life insurance premia or public provident fund.

Precautions

For availing this deduction “higher education” would mean any course of study pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university by the Central government or State government.

It should be paid for the purposes of the full time education of any two children of the tax payer.

Thus, it is clear that the educational institution should be situated within India.

This means that no deduction can be claimed by a tax payer in respect of tuition fees paid for the education of child in an educational institution which is situated outside India. The tuition fees paid to any such institution will qualify for deduction up to the maximum amount of ` 1 lakh. However, the deduction is only for tuition fees and not for any other fees like conveyance fees, bus charges, development fees or donation or any other fees of similar nature.