Spending on your children lead to outflow from your pocket but can also give you tax benefits. Following are the few ways through which you can claim tax benefits for money spent on your kids:
1. Interest on Education Loan: The cost of education on children is very high and should be well planned. Most of you must have taken loan for their education. This results in burden of repayment but you can get partial gain as interest portion on education loan is fully tax deductible under section 80E of the Income Tax Act. The loan must be for 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.
2. Payment of Tuition Fees: Tuition fees paid by the parent to fund his child’s education in any school, college, university or any other education institution within India can be deducted under Section 80C, up to Rs 1lakh in a year. The amount of deduction is restricted to two dependent children and should pertain only to actual fees paid.
3. Health Insurance Premium: When you take an health insurance for your child, you can claim the premium paid as a deduction from your income, up to Rs 15,000 in a year.
4. Expenses on Treatment of disabilities and certain ailments: The Income Tax Act allows the parent to claim a deduction from his income, an amount incurred towards treatment of specific disabilities and illness of his child under two sections. Section 80DD of the Act states that expenses incurred towards medical treatment of dependent children suffering from a disability are eligible for deduction up to Rs 50000 for normal disability (impairment of at least 40%), and deduction up to Rs 1 lakh for severe disability ( impairment of 80% and above). Section 80DDB of the Act allows expenses incurred towards treatment of specified illness for children to be deducted from income up to Rs 40000.
5. Deduction of Allowances: There are many allowances specified in Income Tax Act, which is allowed by employer as a deduction from the income of the employee. The first is a hostel allowance of Rs 300 per month per child, up to maximum of 2 children. The next is an education allowance, wherein Rs 100 per month per child up to a maximum of 2 children is exempted from income. Medical expenses incurred for dependent children are allowed as a deduction up to Rs 15000 per year on furnishing of medical bills.
6. Minor Child’s Income: When you make investments in your child’s name, the income earned from these investments will be clubbed with your income. If you have invested anywhere in your minor child’s name and this investment generates an income, you can claim up to Rs 1500 as a deduction on this income. This is available for up to two children.
7. Formation of a Trust: You can set up a trust in your minor child’s name to save on tax. 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.