Education exemption: Rebate only on tuition fee

Singh in his Budget speech announced, “education is the central vein of our life-time concerns. Therefore, at the level of the citizen taxpayers, as a first step education expenses up to Rs 12,000 per child for two children, will be made eligible for rebate under Section 88 of the IT Act.”

However, as per the clarification by the CBDT official, only the amount charged as tuition fee will qualify for exemption. This will leave many a parent high and dry as the portion of tuition charged by schools is not much when compared with other charges like transport, development fee, building fund, examination fee and other donations of the like nature.

However, full benefit of the tax saving scheme can accrue to the parents if schools decide to restructure fees. Also the rebate will be available for education the children in India.

Another disheartening feature of the tax rebate scheme is that it would be within the overall limit of Rs 70,000 specified by Section 88 for investment in other approved funds. Under this Section 88, tax rebate is given for investment in specified assets like National Saving Certificates (NSC), National Saving Scheme (NSS), Employees Provident Fund (EPF), Public Provident Fund (PPF), tax saving units of mutual funds, premium paid on life insurance, repayment of housing loans and infrastructure bonds of IDBI and ICICI.

The qualifying limit goes up to Rs 1 lakh, with exclusive limit of Rs 30,000 for subscription to equity shares or debentures of infrastructure companies, public financial institutions and mutual funds.

The quantum of rebate to be available to individual on expenditure for education of children will depend on the income of an individual. Earlier, the taxpayers were entitled to 20 per cent rebate for investment under section 88, the whole section was made complicated by former finance minister Yashwant Sinha in his 2002 Budget. He had prescribed different rates of rebates for individuals at different income levels and Jaswant Singh had retained the scheme.

As per the existing level of rebate, an individual having a gross total income above Rs 1,50,000 but less than Rs 5 lakh (before deduction under chapter VIA) will get a rebate of 15 per cent. The rebate will be 20 per cent for taxpayer having an income below Rs 1,50,000.

The rebate will be higher at 30 per cent for salaried taxpayers having gross salary income not exceeding Rs 1 lakh (before allowing deduction under section 16 dealing with standard deduction) and where gross salary income is not less than 90 per cent of the gross total income from all other sources.