Understanding and optimizing these tax breaks can significantly alleviate the financial burden on families and enable them to secure a better future for their children.
By Sudhir Kaushik
In the journey of parenthood, amidst the joys and responsibilities, there lies an often overlooked aspect: the significant tax benefits available to families with young children. Beyond the emotional rewards of nurturing and raising children, there are tangible financial incentives provided by the government to support families in meeting the various needs of their children, including education, healthcare, and other essential expenses. Understanding and optimizing these tax breaks can significantly alleviate the financial burden on families and enable them to secure a better future for their children.
Education Expenses: From Nursery to Postgraduate
Under Section 10(14) of the Income Tax Act, salaried taxpayers are entitled to certain allowances as part of their Cost to Company (CTC) structure to cover expenses related to their children’s education. These allowances include:
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1. Children’s Education Allowance: A deduction of Rs 100 per month per child, up to a maximum of 2 children, totaling Rs 2,400 per annum.
2. Hostel Expenditure Allowance: A deduction of Rs 300 per month per child, up to a maximum of 2 children, totaling Rs 3,600 per annum.
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Additionally, tuition fees paid for children’s education are deductible under Section 80C of the Income Tax Act. Each parent can claim a deduction of up to Rs 1,50,000 per annum separately. This deduction covers tuition fees paid to schools, colleges, universities, or other educational institutes in India for up to two children. However, it’s important to note that this deduction is exclusive to tuition fees and does not encompass other fees, such as those for part-time or international courses.
Sukanya Samriddhi Yojana is also a good tax-saving option for girl children below 10 years and gives higher tax free returns along with tax saving up to Rs 150000 under Section 80C. This is primarily for girl child education and marriage as the amount can be invested up to 21 years of age only.
To secure the financial future of children’s education, it’s advisable for parents to consider investment avenues like children’s insurance plans and Unit Linked Insurance Plans (ULIPs). These instruments not only provide tax benefits but also offer financial security in case of unforeseen circ*mstances like the demise of the contributing parent.
Interest on education loans is also eligible for deduction under Section 80E without any upper limit. This provision is particularly beneficial for families with higher incomes and ensures that the dream of higher education remains within reach, irrespective of financial constraints.
Healthcare Expenses: Ensuring Well-being and Security
Section 80D of the Income Tax Act provides deductions for medical insurance premiums paid for dependent children within the overall family limit of Rs 25,000. Additionally, a sub-limit of Rs 5,000 can be claimed for preventive health check-ups for children, ensuring comprehensive healthcare coverage.
Furthermore, Sections 80DD and 80DDB offer deductions for expenses incurred on the medical treatment of children with disabilities or specific ailments. Under Section 80DD, deductions can be claimed for expenses related to medical treatment and maintenance of children with disabilities, while Section 80DDB allows deductions for treatment of specific diseases such as AIDS, neurological diseases, and malignant cancers.
The amount of deduction under Section 80DD depends on the extent of disability, with a maximum deduction of Rs 75,000 for disabilities exceeding 40%, and Rs 1,25,000 for severe disabilities.
Optimizing Tax Benefits for a Secure Future
Maximizing tax benefits for families with young children requires careful planning and utilization of available provisions under the Income Tax Act. By leveraging deductions for education and healthcare expenses, parents can not only reduce their tax liabilities but also ensure the holistic development and well-being of their children.
Investing in financial instruments like insurance plans, ULIPs, and education loans can further enhance the financial security of children’s future aspirations. Moreover, staying informed about changes in tax laws and seeking professional advice can help families optimize their tax planning strategies to suit their specific needs and goals.
Children 18 years & above can help in saving tax if parents give money or assets to them. The interest or rental income will be treated as major children income and parents can avoid tax at higher tax slab. This strategy is more useful for parents who have already saved money for child higher education & marriage.
In conclusion, the government’s provision of tax benefits for families with young children underscores its commitment to supporting the holistic development and well-being of future generations. By leveraging these incentives effectively, parents can navigate the financial challenges of raising children while securing a brighter and more prosperous future for them.
(The author is CEO, Tax Spanner. Views are personal)
