Budget 2024: How children’s tuition fee can help save on taxes under old regime with minimal effort

After Union Budget 2023 rejigged tax slabs, hiked the tax rebate limit to Rs 7 lakh and introduced a standard deduction of Rs 50,000 under the new tax regime close to 5.5 crore taxpayers are reported to have migrated to this simplified tax framework.

According to reports, most of those who switched to the new regime draw annual taxable incomes of up to Rs 7 lakh. To be sure, the verifiable numbers will be clear only once the returns for the financial year 2023-24 (assessment year 2024-25) are filed later in the year.

Going by preliminary estimates, though, the government’s effort to wean people away from the old, with-exemptions regime seems to be bearing fruit. Many seem to have bought into the idea of not having to make tax-saving investments while enjoying liberalised tax rates and slabs.

For those earning incomes of up to Rs 7 lakh a year (Rs 7.5 lakh, including standard deduction for salaried individuals and pensioners), the tax outgo will be nil, given the tax rebate offered.

Tax benefits on expenses

However, even if such individuals were to opt for the old, with-exemptions tax regime, they can bring their tax outgo to zero without making any tax-saver investments, provided they optimise their tax-planning strategy. For instance, Section 80C is not only about equity-linked saving schemes, public provident funds, tax-saver fixed deposits and so on.

It also offers tax breaks on school/college tuition fees paid for up to two children, subject to the maximum limit of Rs 1.5 lakh. Since these are the expenses that most parents incur in any case and are financially traceable, they constitute a ready-made deduction to reduce the tax outgo.

Also, even if the number of children is, say, three, both spouses can still maximise the tax benefits on offer since both partners have separate limits of two children each. “So, the husband can claim deductions on payment of fees for two children, while the wife avails of tax deduction on fees paid towards the third child’s education,” says chartered accountant Karan Batra, Founder of Chartered Club, a tax consultancy firm.

Likewise, both spouses can also avail of these deductions separately to optimise the tax breaks. “For instance, if the tuition fee paid is Rs 3 lakh, the wife can claim deductions of up to Rs 1.5 lakh while the husband avails of the balance of Rs 1.5 lakh. Our advice is that the money should be transferred from the account of the individual who would be claiming the deduction,” says chartered accountant Chetan Chandak, Director of TaxBirbal, a tax consultancy firm.

In addition, do note that even your kid’s nursery tuition fees would be eligible for deduction. “Such fees paid to a playschool, creche or any other school for pre-nursery or nursery education is also allowed as tax break under Section 80C,” adds Batra.

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Know the ineligible expenses

While claiming this deduction, it is vital to know the child’s education-linked expenses that are not considered eligible. “Any fees paid to schools towards the child’s academic coaching in the school is allowed as a tax concession. Any capitation or donation fees, school bus expenses, picnic charges, etc, cannot be availed as deductions. To keep things simple, you can refer to the component in your kid’s school fee receipt that is tagged as ‘tuition fee’,” says Chandak.

If you have enrolled your child in an extracurricular activity class, even if it is managed by the school, such expenses will not be eligible. The deduction is available only for full-time courses — part time or distance learning fees will not be allowed. “Tax concessions will be extended only if the payment is made to a school, college, university or any such education institute. Fees paid to private tutors or coaching centres will not be eligible for a deduction,” says Batra.

Another restriction is that expenses incurred on children’s education at overseas institutions will not qualify for the deduction. “However, if the institute is based in India but is affiliated to an international university, the tax sop will be extended,” says Batra.