S. Murlidharan

S. Murlidharan on the need for better education orientation in the tax provisions

THAT education needs all encouragement is acknowledged on all hands. Investing in education is no longer viewed as a burden. Many middle-class homes have been catapulted into upper-class, thanks to the power of education what with corporates lapping up educated youngsters.

The Income-tax Act, 1961 does its bit to promote education but the relevant provisions need rationalisation and clarity. Under Section 80C, an individual can claim tuition fees to an educational institution in India for two of his children up to a maximum of Rs 1 lakh per financial year as deduction from his gross total income. That the limit of Rs 1 lakh could often be inadequate given the fact that it is all-inclusive to cover one's contribution to provident fund, insurance premia, and so on, is another matter. There is no reason why the section should not be made more broad-based to accommodate tuition fees to institutions abroad as well as to accommodate the tuition fees in respect of one's spouse. There are many individuals who want their better-half to go up the education ladder but there is no tax encouragement for this noble thought. Moreover, individuals taking education loan and repaying them now get deduction from gross total income only for the interest paid during the eight years reckoned from the first year when interest was paid.

Earlier, no distinction was made between principal and interest though there was an annual ceiling of Rs 40,000, which now has been removed. But in all fairness, the principal amount also ought to be allowed as a deduction. If for some reason Section 80E is sought to be reserved only for interest, then principal must be allowed under Section 80C within the overall ceiling of Rs 1 lakh.

Conscientious parents who do not want to burden their children with education loans taken by them but who are driven to taking loan for the purpose also need to be encouraged. That Section 80C does not insist upon savings/contributions/investments being made out of one's income earned during the year can be a ray of hope for such parents who may take loan from banks and pay tuition fees out of such loan. But will the banks give education loans to parents on the same attractive terms as given to children?

Turning to tax impetus for education benefits provided by the employer, the exemption limit of Rs 100 per month and Rs 300 per month respectively for education allowance and hostel allowance need to revised upwards steeply so as to be meaningful.

The proviso to rule 3(2), which reads as follows, is not very clear: "Provided that where the education institution itself is maintained and owned by the employer and free educational facilities are provided to the children of the employee or where such free educational facilities are provided in any institution by reason of his being in employment of that employer, nothing contained in this sub-rule shall apply if the cost of education or the value of any such benefit does not exceed Rs 1,000 per month."

First, what happens if the cost or, as the case may be, the value of such benefit exceeds Rs 1,000 per month. Will in that event only the excess be taxable or the whole amount? The language of the proviso, however, gives the impression that the entire amount would be taxable which clearly is unfair to the employee, especially in marginal cases of overshooting of the limit. More fundamentally, how to arrive at the cost or value of education?

Should the monthly expenses of the educational institution be aggregated and divided by the number of children studying in the institution? Or should such exercise be carried out annually? But since the proviso talks of a month, one may have to do this exercise every month. What are the expenses that must be added — should, for example, the apportionment of expenses to the institution by the head office of the assessee-company also be included? Why the two-child norm is conspicuous by its absence here while it holds sway both in the context of Section 80C as well as in the exemption of education and hostel allowance?

(The author is a Delhi-based chartered accountant.)

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