Income Tax Exemption for children School fees, education loan
and health costs
Some of the deductions claim for investments made in children's names. Most of
these deductions fall within the investment limit of Rs 1 lakh, under Section
80C:-
Tuition Fees Paid:
In respect of school fees
a parent can claim a deduction of tuition fee paid to any university, college,
school or any other educational institution. The deduction on payments made
towards tuition fee can be claimed up to Rs 1 lakh together with deduction in
respect of insurance, provident fund and pension. It can only be claimed in
respect of two dependent children and for fees to an educational institution
within India and for tuition fee only.
Interest
on Education Loan:
The interest paid (not
the principal amount) on an education loan is fully deductible from taxable
income under Section
80E up to eight continuous years, starting from the year
in which the interest is first paid. This
can be claimed by either the child (if the loan is in their name) or by the
parent.
Premium
paid for health
insurance:
Parents can claim a
deduction up to a limit of Rs 15,000 on premium paid towards health insurance policies taken
for their children.
Tax benefits for certain ailments
The treatment of a
chronic illness can be a drain on the finances of a family. This is why the Income Tax Act
allows a deduction of Rs 40,000 if one has a dependent child who suffers from
any of the ailments specified under Section 80DDB, provided the child does not
separately claim any deduction towards the same ailment.
Aliments
for which tax breaks are available are few:
Neurological diseases
(like Dementia, Dystonia Musculorum Deformans, motor neutron disease, ataxia,
chorea, hemiballismus, Aphasia, Parkinson's Disease),
cancer, full blown acquired immune deficiency syndrome (AIDS), Chronic renal
failure, hemophilia and thalssaemia.
Disabilities
also eligible for deduction:
If one has a disabled
dependent, one is eligible to claim Rs 50,000. The deduction is available only
if the impairment is at least 40 per cent and if the disability is severe (80
per cent or above), the deduction is Rs 1 lakh a year. Incidentally, the
deduction is offered as a lump sum and is irrespective of the actual amount
that the taxpayer may spend.
To claim this deduction, under
Section 80U one must furnish a copy of the certificate issued by the medical
authority in the form and manner, as may be prescribed. Medical Authorities
means any hospital or institution specified in Persons with Disabilities (Equal
Opportunities, Protection of Rights and Full Participation) Act, 1995. Such
Medical Authorities are prescribed from time to time by Government Authorities.
Hostel Allowance Rs 300 per month per
child up to a maximum of two children is exempted (only if expenses are
incurred in India)
Education Allowance Rs 100 per month per
child up to a maximum of two children is exempted (only if expenses are
incurred in India)
Medical Expenses
Reimbursement Deduction of up
to Rs 15,000 per annum is allowed. This can be claimed for self as well as for
children who are dependent. Medical bills have to be furnished to avail this
benefit.
Free/Concessional
Educational Facility:
Deduction to an extent of
Rs 1,000 per month is allowed provided the educational institution is
maintained and owned by the employer or any other educational institution by
reason of his being inemployment of that
employer.
Setting
up a Trust:
One can save taxes by
creating a trust for children. One needs to make an irrevocable transfer to the
trust, where money cannot be claimed back by the donor. All investments are
made through the trust and the income generated can only be used in accordance
with the purpose of the trust. The income from the investments is not clubbed
with the donor's income, but the trust needs to pay tax. This method helps
reduce the tax liability.
Gifts:
Any gift received in cash
or kind exceeding Rs 50,000 is taxed in the hands of the recipient. However,
this rule does not apply to gifts received from relatives and received on the
occasion of one's marriage or under a will or inheritance. Any transfer of
money or of movable or immovable assets, is considered as a gift. Though there
is no tax on gifts, all gifts in excess of Rs 50,000 (other than those from
relatives) and income generated through them get clubbed with the recipient's
taxable income. However, income earned by assets gifted to minor children are
included in the income of the donor for taxation. If you want the money earned to be treated as
independent income of your minor children you will have to prove that the
recipients had used their own acumen for making
money from the gifted assets.
By utilising these tax breaks
given by the income tax
department, it is possible to further reduce one's tax burden. However, only one parent can claim these benefits - not both.
Summary:
·
One can deduct their children's education expenses, and medical
bills against their taxes
·
A dependent child's income will be clubbed with yours unless it
can be proved that the child has earned the
money in his
or her own right
·
Setting up a trust for your children is a tax efficient method
of investing on their
behalf
·
Only one parent can claim deductions for the children, not both
