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  • Income Tax Benefits And Deductions For Expenditure On Children

    In India, taxpayers can save on tax by claiming deductions on the expenditure they incur for their children. As per the Income Tax Act, individuals can avail of tax deductions on these expenses. In order to claim deductions on children’s expenses, taxpayers are required to reveal or disclose all possible deductions that they claim as expenses on their children while filing their income tax returns. The total income that would be taxable following computation and reduction of any deduction will be subject to taxation in accordance with the slab rates prescribed by the Income Tax Act.

    Various Types Of Income Tax Benefits And Deductions For Expenditure On Children:

    Taxpayers can avail of tax benefits or deductions as per the Income Tax Act on different forms of expenses that they incur on their children. These deductions can be claimed under certain sections of the Income Tax Act, which can be explained below:

    Deductions As Per Section 80C of the Income Tax Act:

    With regards to educational expenditure incurred on children, deductions under Section 80C of the Income Tax Act deal with all deductions that can be claimed with regards to the fees paid by a taxpayer towards any educational institution in India for the education of his or her child.

    Features of Deductions Under Section 80C With Regards To Educational Expenses of Children:

    • All taxpayers who have made payments in the form of fees for the education of his or her child, can avail of tax deductions under this section
    • The fee paid in total by the taxpayer over the duration of a financial year towards the educational needs of his or her child can be claimed as a tax deduction as per the provisions of this section
    • Taxpayers can claim tax deductions up to a maximum of Rs 1.5 lakhs under this section
    • Deductions can only be claimed by an individual taxpayer. These deductions do not apply to Hindu Undivided Families (HUFs)
    • Taxpayers can claim deductions under this section for a maximum number of two children. However, this applies to each parent individually, which means that both the husband and wife can claim deductions under this section for two children each.
    • Deductions can be claimed for the year that payments towards fees have been made, regardless of whether the fee payments were made for any years previously or as an advance payment. This means that deductions can only be claimed towards any fees that have been made on a Payment Basis.
    • Deductions under Section 80C can only be claimed on fee payments towards full time courses. As such, fee payments made towards part-time courses are not eligible for deduction.
    • Deductions under this section cannot be claimed on any payments made towards private coaches or tutors, and can only be claimed on fee payments made to schools, universities or colleges
    • Taxpayers can claim deductions under Section 80C only on fee payments made towards educational institutions based in India, and not towards foreign universities. However, deductions can be claimed by the taxpayer on fee payments made towards an education institution based in India, which has affiliations with a foreign education institution.
    • Deductions under this section can also be claimed on fee payments made towards any pre-school or nursery education.
    • Deductions can be claimed towards the educational expenses incurred on adopted children as well
    • Both parents or guardians of a child or children can claim income tax deductions under this section, provided both individuals are contributing towards their educational expenses
    • Deductions under this section cannot be claimed on educational expenses for an individual other than his or her child
    • Deductions under this section cannot be claimed on other expenses such as donations, hostel and transport charges, late fees, library and mess expenses, development charges etc.

    Deductions As Per Section 80E of the Income Tax Act:

    With regards to expenses incurred on a child’s education, deductions under Section 80E of the Income Tax Act deal with all deductions that can be claimed with regards to repayments made towards loans taken out by the taxpayer for the education of his or her children.

    Features of Deductions Under Section 80C With Regards To Educational Loan Interest Repayments:

    • Only individual taxpayers can claim deductions under this section. Deductions under this section cannot be claimed by Hindu Undivided Families (HUFs)
    • Deductions can be claimed only on interest repayments that are made towards an educational loan, provided the loan is utilised for the higher education of the taxpayer’s children.
    • Deductions can only be claimed on the interest repayments of the education loan and not on the principal amount repayments.
    • Deductions claimed under Section 80E do not have a maximum limit, and can be claimed over the maximum limit of Rs 1.5 lakhs allowed as per Section 80C
    • Deductions under this section can be claimed on interest repayments towards educational loan that are utilised for higher educational courses in both India as well as abroad.
    • Deductions under this section can only be claimed on educational loans that have been acquired from authorised banks or financial institutions, and not from relatives, family members, acquaintances or friends.
    • Deductions under this section can be claimed over a duration of no more than eight years or until the point when the interest has been completely paid off by the taxpayer, depending on whichever comes first.

    Deductions As Per Section 80D of the Income Tax Act:

    A taxpayer can claim income tax benefits or deductions under Section 80D of the Income Tax Act with regards to expenditure incurred on the health of his or her children. As per the provisions outlined under Section 80D, these expenses relate to any amount that has been made as payment towards health insurance premium.

    Features of Deductions Under Section 80D With Regards To Expenses Incurred On The Health Of The Child:

    • Deductions under this section can only be claimed on payments made towards health insurance premiums, which are utilised for ensuring the child’s well-being and health.
    • Deductions under this section can be claimed on top of the maximum tax deduction of Rs 1.5 lakhs that is permitted under Section 80C
    • If neither the taxpayer, his or her spouse, nor any of the dependant children have reached the age of 60, then the maximum amount of tax deduction that can be claimed on the payment of health insurance premiums towards the children cannot be more than Rs 15,000
    • If the children are below the age of 60 and the parents are above the age of 60, then the maximum amount of tax deduction that can be claimed on the payment of health insurance premiums towards the children cannot be more than Rs 15,000
    • If both the children as well as the parents are above the age of 60, then the maximum amount of tax deduction that can be claimed on the payment of health insurance premiums towards the children cannot be more than Rs 20,000
    • A maximum deduction of not more than Rs 5,000 can be claimed on payments made towards preventive health check-ups for the taxpayer’s children. This amount is not exclusive of the deductions mentioned above.

    Deductions As Per Section 80DD of the Income Tax Act:

    A taxpayer can claim income tax benefits or deductions under Section 80DD of the Income Tax Act with regards to any expenditure incurred due to his or her child or children being medically disabled. However, these deductions are dependant on the nature of the expenditure involved.

    Features of Deductions Under Section 80DD With Regards To Expenses Incurred Due To The Medical Disability Of A Child:

    • Deductions under this section can be claimed by an individual taxpayer as well as a Hindu Undivided Family (HUF)
    • Deductions under this section can be claimed over the maximum deductions limits allowed under other sections of the Income Tax Act
    • Deductions can be claimed on medical expenses and treatment made towards a child or children with a medical disability
    • Deductions under this section can also be claimed on any payments made towards insurance premium that has been taken out for the purpose of caring for the taxpayer’s child or children who have medical disabilities.
    • Deductions can be claimed under this section for the following medical disabilities among others:
      • Mental retardation
      • Hearing Impairment
      • Low Vision
      • Loco Motor Disability
      • Blindness
      • Leprosy-cured
    • If the child is medically disabled, and exhibits at least 40% of the disabilities mentioned above, then the maximum deduction that can be claimed over the course of a financial year is Rs 75,000
    • If the child is disabled to a severe extent, and exhibits at least 40% of the disabilities mentioned above, then the maximum deduction that can be claimed over the course of a financial year is Rs 1,25,000

    Deductions As Per Section 80DDB of the Income Tax Act:

    A taxpayer can claim income tax benefits or deductions under Section 80DDB of the Income Tax Act with regards to any expenditure incurred on medical treatment on account of his or her child or children that are suffering from a specific ailment or disease. However, these deductions are dependant on the nature of the expenditure involved.

    Features of Deductions Under Section 80DDB With Regards To Expenses Incurred Due To The Medical Treatment Of A Specific Ailment Or Disease:

    • Deductions under this section can be claimed by both individual taxpayers as well as Hindu Undivided Families (HUFs)
    • Deductions can only be claimed by Indian residents or by individuals who have Indian residence for the relevant year
    • Deductions claimed under this section can be either Rs 40,000 or the amount actually made towards payment for medical treatment, depending on whichever is lower
    • Deductions under this section can be claimed on top of the maximum tax deduction of Rs 1.5 lakhs that is permitted under Section 80C
    • Deductions under this section can only be claimed on the medical treatment for specific ailments or diseases such as:
      • Full blown Acquired Immuno Deficiency Syndrome (AIDS)
      • Neurological Diseases
      • Hematological Diseases
      • Malignant Cancers
      • Chronic Renal Failure
    • Deductions under this section can be claimed provided the taxpayer submits a certificate acquired from a doctor specialised in the field of the disease in question, regardless of whether the doctor is employed by a government run hospital or not.

    Deductions As Per Section 10 of the Income Tax Act:

    A taxpayer can also claim income tax benefits or deductions under Section 10 of the Income Tax Act in the event his or her employer allocates specific allowances for the benefit of the taxpayer’s children. These allowances could be in the form of hostel allowances, allowances in relation to children’s education etc. However, any income tax deductions or exemptions that are permitted for these allowances are subject to specific limit as mentioned in the provisions of Section 10 of the Income Tax Act.

    Frequently Asked Questions:

    1. Who is eligible to claim tax benefits or deductions on expenditure incurred on children?

      In a general sense, tax benefits or deductions can be claimed by an individual who has incurred the expenses made on the child or children. This is usually a parent or a legal guardian. However, if both the parents of the child or children bear expenses outlined under the sections mentioned above towards their children, then both individuals can claim tax benefits or deductions as per various sections of the Income Tax Act.

    2. What are some of the other payments that are not eligible under Section 80C?

      In addition to the payments or fees that are not eligible for deduction mentioned under Section 80C, other payments such as fees made towards sporting events, parent-teacher associations or staff donations are also not eligible for tax deduction.

    3. Why are these payments not eligible for tax deduction under Section 80C?

      Under Section 80C, only payments or fees made towards the direct education of children are eligible for tax deductions. The payments or fees made towards transport, coaching, games etc are deemed to be related only indirectly towards the education of the children, and hence are not eligible for tax deduction. 

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