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Education for children — how availed?

Sec. 80E provides for deduction of any amount paid by a parent as interest on the loan taken by any child for purposes of pursuing higher education. Deduction is available for initial year and seven following assessment years or the year by which the interest is paid in full, whichever is earlier. Borrowing should be from a financial institution or an approved charitable institution notified by the Central Government and the education referred to is higher education for any graduate or post graduate courses in applied or pure sciences including mathematics and statistics.

There is a similar deduction under Sec. 80C(2)(xvii) for tuition fees, including payment towards development fees or donation to any university, college and school or other educational institutions for full time education of any child and if met out of HUF fund for education of any member, the only limitation is being that such deduction can be availed only for two children. It follows that tuition fees will have to be paid out of the income of the parent, who is claiming the deduction. Rule 2BB provides for exemption of Children Education Allowance for education of not more than two children at Rs. 100 a month and Rs. 300 a month per child, if hostalised.

The reader’s proposal to deposit any amount in the name of his son would not be liable to tax either in his or his son’s hands. If the son is not an adult, interest income on such gifts will be taxed in his hands. A gift or deposit for purposes of education will not qualify for deduction under Sec. 80C(2)(xvii), which allows deduction only for expenses met out of his own fund during the year of expenditure.

However, there could be no objection if the deposit is made in a separate account in the name of the reader himself possibly with nomination in the name of such son in order to be able to avail the benefit of Sec. 80C as and when such amount is drawn to meet educational expenses falling within Sec. 80C2(xvii) of the Act.

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