The government has significantly increased the tax-free limits on allowances for children’s education and hostel expenses under the revised income tax rules. While the latest updates mark a sharp jump as compared to earlier limits, with the maximum exemption likely to go up to ₹2.88 lakh a year for families with two children, reportedly not everyone can avail the benefits.
The child education allowance has been raised from ₹100 to ₹3,000 per month per child, while the hostel allowance has gone up from ₹300 to ₹9,000 per month per child. These limits apply per child, for up to two children.
Who is eligible to claim child education allowance?
Only salaried individuals can claim the allowances – provided the amount is part of their salary package. The allowances can also be availed for a maximum of two children.
What can be the maximum annual exemption?
Given the revised allowance limits, the maximum education allowance for two children amounts to ₹72,000, while the hostel allowance amounts to ₹2,16,000, reported ET.
Taken together, the total possible exemption adds up to ₹2,88,000 a year – which can directly lower one’s taxable salary, mentioned the report.
Taxpayers of which regime get the benefit?
The tax breaks, however, are only available under the old tax regime.
Those taxpayers who chose the new tax regime usually cannot claim most exemptions and deductions, including child education and hostel allowances. Thus despite higher limits – new regime users will not benefit from the revised allowances, mentioned ET’s report.
How much tax can you save?
For someone in the 30% tax bracket, an exemption of ₹2.88 lakh – as mentioned above — can bring down the tax liability by about ₹83520 – excluding surcharge and cess. As per ET – this makes the revised allowances beneficial for middle- and higher-income salaried parents who continue to opt for the old tax regime.
Components to be included in CTC
In order for you to claim the allowances, your employer must include the following components in CTC:
— Child education allowance
— Child hostel allowance
To claim these – it is advisable to keep documents like school admission proof, fee receipts, and hostel stay records handy, as employers may ask for them during payroll processing or while submitting tax proofs.