The Hindu Business Line : Dot the i's and cross the t's

ANY NATION prides itself on the importance it bestows on education. In India though, there are mixed feelings about the Government's role in furthering the cause of education and improving the facilities at the primary and secondary levels. No doubt, over the last decade or so, huge investments have been made in the field of education. Not surprisingly, the Income-Tax Act, 1961 has a role to play on this front. And though the I-T Act has some incentives and fiscal reliefs for assessees spending on education, they are cumbersome and dated.

Existing provisions

At present, children's education allowance is exempt subject to Rs 100 per month per child and up to a maximum of two children. Similarly, any allowance given to an employee to meet hostel expenses is exempt subject to Rs 300 per month per child and up to a maximum of two children. Today, the average cost of primary schooling works out to nothing less than Rs 15,000-20,000 a year. There is also the additional expense of, among other things, procuring books, the costs of which are spiralling year after year. The salaried class provides for this expenditure out of after-tax income. Education expenses are a necessity and cannot be construed as that on luxuries.

If a businessman can set off salary paid to his employees or depreciation on motorcar as a legitimate deduction, there is no reason why education expenses in toto should not be set off against gross salary. Admittedly, standard deduction at various amounts, which were prescribed earlier, was meant to take care of day-to-day expenses. Today, no standard deduction is available for income in excess of Rs 5 lakh. It is a clear case of the salaried class not entitled to legitimate allowances/expenses, education being one of them. There is also Section 80E in respect of repayment of loan taken for higher education. The section thus:

"In computing the total income of an assessee, being an individual, there shall be deducted, in accordance with and subject to the provisions of this section, any amount paid by him in the previous year, out of his income chargeable to tax, by way of repayment of loan, taken by him from any financial institution or any approved charitable institution for the purpose of pursuing his higher education, or interest on such loan. Provided that the amount which may be so deducted shall not exceed [forty] thousand rupees."

It will be interesting to find out how many assessees utilise the Section 80E benefit, as it is practically impossible to claim the deduction.

The section requires the student in question to claim the deduction. How many students will be able to generate income to claim a deduction of Rs 40,000?

If this provision is to be made workable, the deduction should be made available in the hands of the parent/sponsor. Clearly, it is in the statute book without achieving any purpose. Section 80E should, therefore, be modified to allow deduction in the hands of the sponsor.

Kelkar recommendations

The Kelkar panel, having gone through the system of tax concessions on education in India and abroad, has recommended that it be continued: "On grounds of equity, we also recommend that the income-based deduction under Section 80E should be converted to a tax rebate at the minimum marginal rate of personal income-tax. The maximum amount of tax rebate should be restricted to Rs 4,000."

It must also be noted that countries which do not give tax concessions on education, compensate by providing top class educational facilities. In India, educational concessions are unworkable and inadequate, the facilities are far from satisfactory and hardly affordable for a majority of the people and admissions are difficult to get, not to mention capitation fees/donations. There is a need for a complete relook at the product and process of education and make the tax laws equitable and workable so that, if at all any concession is given, it reaches those who are entitled to the same without hardship.

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