Chetan has a two-year-old daughter and it’s his dream to provide her high-quality education right from preschool till post-graduation. Both he and his wife work and are actively looking ways to ensure that they have enough saved up and invested for their daughter’s education. The rising cost of a good education is worrisome, and they have to make sure they build an adequate corpus that fully meets all education expenses.
Chetan is not alone. Every parent wishes to give her child a good quality education. Education is one of the biggest expenses parents can incur, especially if their child wants to go for higher education abroad. Saving for your child’s future education is a long-term investment activity that should happen regularly with discipline so that there are enough funds to meet these expenses as and when they arise. Chetan and his wife are on the right path when it comes to planning for education expenses early.
Saving for your child’s education involves a range of different investments depending on the timelines when funds are required. However, it is also possible to save income tax while making these investments. This guide has tips on how to save for your child’s education. Any amount saved in terms of tax can be repurposed to add to your child’s education fund. By saving tax, you will save money, which can then be reinvested in saving for your child’s college education.
Here are some of the ways to save tax on a child’s education:
• Invest in a Child Education ULIP:
A unit-linked insurance plan or ULIP is a way to profit from the growth in equity markets and also provide insurance. Child education plans invest in different funds, and also provide insurance to the child. In case of death of the policyholder/parent, a death benefit will be paid out, and on maturity of the policy, the fund value will be paid out. In case of death of the policyholder, the premiums will stop, but the investments in the funds will continue till maturity. This provides double benefits to the family. In case the policyholder survives, then the fund value is paid out on maturity.
Investment in ULIP gets a deduction up to Rs. 1,50,000 under Section 80C of the Income Tax Act.
• Structuring your salary and allowances:
Certain allowances given by the employer are exempt from tax. Education allowance given by the employer is exempt from tax up to Rs. 100 per month for a maximum of two children. This means Rs. 1,200 per year per child which is exempt. Exempt income means income on which tax will not be charged. You can get your salary structure changed to reflect Rs. 1,200 as education allowance so that it can be exempt. This exemption is available under Section 10(14) of the Income Tax Act.
• Deduction for tuition fees:
The Income Tax Department allows a deduction under Section 80C for tuition fees paid for your child’s education. This can be tuition fees paid to any educational institute, college, school etc based in India. There is no restriction on the type of study availed, it can be from nursery education to post-graduate education. This deduction is capped at Rs. 1,50,000 under Section 80C of the Income Tax Act. You will need to show proof of fees paid after which it will be deducted from your taxable income. Chetan or his wife can use this deduction to ensure they save tax on fees paid.
• Interest on loan taken for education:
Under section 80E, all the interest taken on a loan for education is allowed as a deduction. This loan should be taken from a bank or an approved financial institution. The higher studies can be pursued from India or abroad and the interest will still be allowed as a deduction. There is no limit on the amount that can be deducted.
Saving for your child’s education is essential to ensure you can meet those expenses when they arise. But by taking a few simple steps, you can ensure you save tax and increase your savings, thus helping you achieve your corpus goals faster.