Image Credit source: Google Gemini
Under the new income tax rules, the government has significantly increased the tax-free limit on allowance for children’s education and hostel expenses. While these new updates are significantly higher than the previous limits—the maximum exemption could be up to Rs 2.88 lakh annually for families with two children—but reportedly, not everyone can avail of these benefits. The allowance given for children’s education has been increased from Rs 100 to Rs 3,000 per month per child. Whereas hostel allowance has been increased from Rs 300 to Rs 9,000 per month per child. These limits apply per child, and are available for a maximum of two children.
Who is eligible to claim Children’s Education Allowance?
Only salaried people can claim these allowances – provided this amount is part of their salary package. This allowance can be taken for a maximum of two children. According to the ET report, considering the new limit of allowance, the maximum education allowance for two children is Rs 72,000, while the hostel allowance is Rs 2,16,000. Combining the two, the total potential exemption comes to Rs 2,88,000 annually – which can directly reduce one’s taxable salary.
Taxpayers in which tax system get this benefit?
However, these tax exemptions are available only under the old tax system. Taxpayers who have opted for the new tax system cannot generally claim most exemptions and deductions, including children’s education and hostel allowance. Therefore, despite the limit being higher, users of the new system will not benefit from these new allowances.
How much tax can you save?
For someone in the 30 per cent tax bracket, the exemption of Rs 2.88 lakh mentioned above can reduce the tax liability to approximately Rs 83,520—this does not include surcharges and cess. According to the ET report, this makes these new allowances beneficial for middle and high income salaried parents who continue to choose the old tax system.
Components to be included in CTC
To claim the allowance, your employer must include the following components in the CTC—
– Children’s education allowance
– Children’s hostel allowance
To claim these, you will have to keep documents like proof of admission in school, fee receipts, and records of hostel stay with you. Employers may ask for these during payroll processing or while submitting tax proofs.
