The middle class invests in education to catapult itself from mediocrity to excellence, both in the matter of quality of life and status in society as well as job satisfaction. In fact, many success stories can be cited. Sundar Pichai, CEO of Google, is a shining example. So are the entire Old Boys club of Infosys promoters led by Narayana Murthy and Nandan Nilekani. Yet the income tax law is extremely niggardly in conferring tax breaks for this seminal area except that it mistakenly confers complete income tax exemption to charitable trusts running educational institutions, many of which are far from indulging in charity.
In the upcoming interim Budget for 2019-20 to be presented on 1 February 2019, the Finance Minister should address the following issues:
Section 80E allows interest payable to a bank or financial institution or charitable trust on education loan for higher studies of self or spouse or children (post-school education, i.e. after Class 12 for eight consecutive years starting with the year in which the first installment of interest was paid. Often times education loans are taken by students for whom a special consideration is shown"moratorium of 7 years. But the interest clock keeps ticking meanwhile.
While interest indeed is a big burden, why should the principal be given short shrift? The interim budget should address this irrationality because it is not taken care of by section 80C either as shown below;
Section 80C allows tuition fees paid for two children of the taxpayer, whether to a school or college so long as it is in India. But this section is not education-specific but an umbrella one. It has an overall limit of Rs 150,000 including for provident fund contribution, home loan principal repayment, life insurance premiums, tuition fees, etc.
Many find the Rs 150,000 ceiling too low considering the omnibus character of the section. In the event, the education benefit under this section is often illusory. There must be a special section for tuition fees so as to be meaningful.
The principal of educational loan cannot be deducted from one's income under this section because the tuition fee is paid out of loan and not out of income. Section 80C makes it clear that only payments made out of taxable income qualify.
The tax-free education allowance of Rs 100 per month per child subject to a maximum of two children is a cruel joke. Fixed eons ago, this limit needs to be liberally scaled up. Education expenses incurred by parents on their wards include tuition and other fees to the school, transport expenses which typically is about Rs 1,000 per month, nutrition and books and stationery.
If a liberal employer, the one who appreciates the value of education gives a liberal education allowance of Rs 2,000 per month per child subject to a maximum of two children, the bulk of this amount would become taxable for the one having two school-going children.
Out of Rs 48,000, only Rs 2,400 would be tax-free. This is not an exemption but an insult. Ditto for exemption to hostel allowance of Rs 300 per month subject to a maximum of two children.
As mentioned in the beginning, the income tax law is lopsided when it comes to conferring tax benefits. Educational institutions make a show of being not-for-profit through clever accounting. There is no reason why they should not be taxed just as hospitals with a fig-leaf of charity should not be. The tax benefits thus denied to the educational trusts should be transferred to those who need them more"students and their parents and patients. There should not be any tokenism about tax benefits for education, the passport to prosperity. There cannot be a mere bhiksha (alms) for shiksha (education).
(The author is a senior columnist and tweets @smurlidharan)
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