Spend For Your Children, Get Tax Benefits

In today’s world of ever increasing expenses, spending on your children results in a substantial outflow from your pocket.

However, did you know that you can get tax benefits on many expenses and investments made in your child’s name?

This includes a wide variety of expense heads and investments. Most of these investments fall under the ambit of Section 80 C within the Rs. 1 lakh limit. Here are a few such cases that will help you reduce your tax outflow:

Interest on education loan:

The cost of education for your child is a huge outflow, and needs to be well planned. Most of you may opt to take a loan to fund your child’s higher studies. While this results in a repayment burden, you can gain partially, as the interest portion on education loan is fully tax deductible under Section 80E of the Income Tax Act.

This loan can be taken by the borrower, parent or spouse of the student from a recognized financial institution. The loan must be taken for a full-time course, which can either be a graduate course in engineering, medicine or management or post-graduate course in engineering, medicine, management, applied sciences or pure sciences including mathematics and statistics.

Payment of tuition fees:

Tuition fees paid by the parent to fund his child’s education in any school, university, college or any other education institution within India can be deducted under Section 80C, up to Rs. 1 lakh in a year. The amount of deduction is restricted to two dependent children and should pertain only to actual tuition fees paid. However, both husband and wife have a separate limit of two children. So each parent can claim for two children each.

Health insurance premium:

When you take health insurance for your child, you can claim the premium paid as a deduction from your income, up to a Rs. 15,000 in a year.

Formation of a trust:

You can set up a trust in your minor child’s name to save on tax. You will need to make an irrevocable transfer to the trust, so that the money will not be claimed by you. When you make investments through this trust, the income made through these investments will not be clubbed with your income. Even though the trust has to pay tax on this income, the total tax liability will be lesser if the income is clubbed with your income.

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