Income Tax: Here’s How Your Expenditures And Investments For Children Save Your Tax

Know about these tax benefits and take maximum advantage of these expenses which can reduce your financial burden to a great extent and provide a better future for your children.
Income Tax
Income Tax

Becoming a parent is one of the greatest joys of life and it comes with some responsibilities and expenses. Do you, however, realize that these expenses also attract some tax exemptions? Apart from the happiness that comes from the presence of children in the family and their upbringing, parents also get financial support from the government so that parents have less trouble in taking care of children's health, spending on education and meeting their needs. By understanding the tax benefits that parents get due to small children and taking maximum advantage of them, the financial burden of the family can be reduced to a great extent. With this, children can be given a better future. Your children can also play an important role in saving family tax, mostly under the old tax regime. Let us know how you can avail maximum tax exemption after becoming a parent.

Education Fees

Employed taxpayers are entitled to certain allowances under section 10(14) of the Income Tax Act as part of the Cost of Company (CTC) structure to help fund the education costs of their children. These allowances include education and hostel expenses.

Children's Education Allowance:

Deduction of Rs 100 per month for each child, up to a maximum of Rs 2,400 per year for two children.

Children's hostel allowance:

Deduction of Rs 300 per month for each child, maximum Rs 2,600 per year for two children.

Expert View

Amarpal S. Chadha, Tax Partner and Mobility Leader, EY India said, “Investing in your children surely helps in building a better future and at the same time, provides you with an opportunity to plan your taxes on such expenses/ investments. Although the new tax regime does not provide for any deductions or exemptions, barring a few, there are many expenses and investments for your children which are eligible for deductions or exemptions under the old tax regime. Some of the deductions available under the old tax regime that can reduce your tax burden are payment of tuition fees to a university, college, school, or any other educational institution eligible under section 80C, repayment of interest on education loans for higher studies eligible under section 80E, contributions to Sukanya Samriddhi Yojana, which is eligible for girl child under section 80C, payment of health insurance premiums eligible under section 80D, etc.”

“In principle, while deciding on the investment options for children, one should look at choosing investments that will not have taxable income on a regular/annual basis, but which will generate income or appreciation in the long run, taxable at the end of a specified period and which will help meet the future needs of the child,” Amarpal S. Chadha added.

Tax exemption on health insurance

Section 80D of Income Tax gives the benefit of a tax deduction on health insurance premiums paid for children. The upper limit of the tax deduction for children, wife and self i.e. family in a health insurance policy is Rs 25,000. Under Section 80D of Income Tax, a family with a child can claim a tax deduction of up to Rs 25,000. Apart from this, Comprehensive Health Insurance coverage ensures additional claims up to Rs 5,000. With this coverage, families can also claim a sub-limit of up to Rs 5,000 for preventive health checkups of children.

Additionally, sections 80DD and 80DDB provide tax deductions for expenses incurred on medical treatment of children with disabilities or specific diseases. Under Section 80DD, tax deduction can be claimed for expenses related to medical treatment and maintenance of disabled children, while Section 80DDB allows a deduction for treatment of specific diseases such as AIDS, neurological diseases and fatal cancers. The amount of deduction under Section 80DD depends on the extent of disability, with a maximum deduction of Rs 75,000 for more than 40% disability and Rs 1,25,000 for severe disability.

Save maximum tax for better future of children

To maximize the scope of tax savings under the old tax regime for families with small children, the sections available under the Income Tax Act have to be used wisely. By availing deductions for education and healthcare expenses, parents can not only reduce their tax liabilities but also ensure the overall development of their children.

Children aged 18 and above can help save tax if parents give them money or assets. Interest or rental income will be treated as the principal income of the children and by doing so parents can avoid paying tax at the higher slab rate. This strategy is more useful for parents who have already saved money for their child's higher education and marriage.

Overall, the provision of tax benefits for families with small children helps in the overall development of future generations. These decisions taken for the better future of children show the commitment of the government. By properly taking advantage of these incentives, parents can overcome the financial challenges of raising their children while securing a bright future for them.

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