Are Education Expenses Tax Deductible?

Studying abroad is a well-known high-end dream of parents and students. Top colleges in India conduct entrance-level exams. The challenging exam level decreases the selection rate to 0.5%; yes, the rate is not low but steep.

Every parent wants to do their best for their interm of schools and college to acquire the best education, unique skills, stand-out personality, commitment to the future, and a giving attitude for seeking sky-high opportunities.

Higher education means acquiring creative skill sets to land high-ticket jobs or entrepreneurial values. Ivy League universities are known for their leadership in student development, diversity in the student body, and intellectual brilliance. Commitment toward the community is another aspect taught in Ivy League colleges that makes students empathetic.

But getting selected for such colleges is no less than a roller coaster ride. The fee structure will shock a middle-class earning family and make it hard to afford the educational expenses.

Education loans are a great way to reach your dream college. Some education expenses are tax deductible and allow you to claim tax relaxation. In past years, tax rules have changed, so it’s vital to check which college offers tax-deductible options to students.

Here is the list of points every application holder should check to gain maximum benefit in relaxation:

1. Student loan interest expense is valid under the tax-deductible list. The colleges offer relaxation on expenses to qualified students up to $2500 annually. In this scenario, the loan should be solely used for the college’s fee payment. If any inclusive expense is paid using a loan, the college directly disqualifies and exempts from any future relief. It requires students to be dependent, taxpayers, and enrolled in part-time employment. After completion, the student should choose opportunities offering unique skills and award certification from recognized credentials.
2. Work–Related expenses are no longer countable under the tax-deductible list. Under new tax reforms and itemization, employers between (2018-2025) are not eligible to claim for any deduction. However, if an individual is self-employed, they can receive some deduction according to the list. Also, the law suggests the student acquire and develop demanding skills and become tech-savvy to continue obtaining the tax deduction.
3. Tuition expenses are not part of the deduction from taxes after 2020. You could deduct tuition and fees from your income if you, your spouse, or your dependent incurred qualified school expenses. These costs had to have been incurred to enroll in or attend an eligible educational facility. Due to filing status and modified AGI, the deduction might be as little as $0, $2,000, or 100% of qualified higher education costs. For 2020, the deduction’s phase-out started at $65,000 ($130,000 for MFJ). Before 2021, you were often allowed to deduct tuition related expenses if you paid for an eligible student—who may have been you, your spouse, or a qualifying higher education expense—or if you paid the education expense for an eligible student.

There are some other qualifying expenses that a student gets if enrolled in a degree program. Generally speaking, living expenses, transportation costs, medical costs, and insurance do not qualify as school expenses for an education credit. 

Likewise, non-credit courses only qualify as educational expenses if they are a requirement for a degree.

Now, let’s gain some insights into tax deduction under Section 80E. The tax deduction in expense under Section 80E is for the parents who apply for an education loan for a certain amount to pay the college fees. So, some relaxation is offered in the education loan’s interest repayment.

1. A tax deduction is allowed for those individuals who use the loan amount solely to pay the fee and include no hidden expenses.
2. The income tax department allows tax deductions only on interest amount, excluding the principal amount.
3. The maximum limit is not fixed in the interest payment amount, but the upper limit is set to 1.5 lakh INR, mentioned under Section 80E.
4. The claim from the parent should be claimed less than 8 years under Section 80E.
5. Hindu Undivided Family (HUF) is not eligible to claim any tax deduction; only individuals are allowed to claim relaxation.
6. For Ivy League College admission, the declaration of college geographical location should be attached for the income tax department to gain tax deductions.
7. Loans should be financed from government-authorized banks or non-banking financial institutions. The tax deduction will not apply to the amount taken from friends, family, and relatives.

Above point’s paints a clear picture for the parents seeking tax deduction in interest payment of loan.

How to apply for tax deductions in education expenses?

Here is the simple categorization for the individual and others seeking to apply for the education expense reduction.

1. For individuals seeking tax reduction can apply under section 10(14) and tuition fee reduction is covered under Section 80E.
2. Those who dream of sending their child abroad for higher education and working on a salary can submit the fee receipt officially issued by the institution. They should also declare their financial status using Form 12BB.
3. An individual who is self-employed or not salaried can apply VI – A schedule under Section 80E. An individual should keep a check on the receipts to support their claim. The whole documentation should include all sorts of expenses for the collective deduction. Do not forget to keep an eye on the limits to apply accordingly and not exceed them to look foolish!

After giving a detailed reading of the above points, let’s summarise what are the insights of tax-deduction on education expenses.

Certain educational costs may qualify for tax deductions based on the kind, value, and conditions. Allowances, deductions, and domestic and overseas school credits are examples of tax benefits. These advantages may enhance refunds or reduce tax obligations. Before claiming, speak with a tax professional, as there are restrictions and requirements.