Every April, you sit down to file your taxes, scroll through the deductions list, and think — surely there’s something here for the lakhs I spent on my kid’s school fees this year.
There is. Most people just never find it.
If you’re a salaried parent, you likely have access to not one but three separate tax benefits tied to your child’s education. And all three just got a lot more valuable.
What are these benefits?
Most people know vaguely that school fees have some tax angle. What they don’t realise is that there are four completely distinct benefits for school fees, hostel bills and tuition fees and its way of claiming:
- Children’s Education Allowance (CEA) is paid by your employer as part of your salary.
- Hostel Expenditure Allowance is also a separate employer-paid benefit for parents whose children stay in a hostel.
- The tuition fee deduction under Section 123 (previously Section 80C), which you can claim while filing your ITR, on the tuition fees paid during the year, not the full school fee.
- If your child has taken a loan for higher education, the interest paid on it is tax-free under Section 129 (previously Section 80E) for up to 8 years.
All three can be claimed together. Let’s go through each one.
Why CEA just became worth claiming?
CEA is an allowance your employer pays toward your child’s education as part of your salary structure. A portion of it is exempt from tax, meaning it doesn’t get added to your taxable income.
For years, that exempt portion was ₹100 per month per child. Which is less than what most schools charge for a single activity period today. The limit was so low that most salaried parents didn’t even bother tracking it — ₹1,200 a year simply wasn’t worth the paperwork.
Under the Income-Tax Rules, 2026, that limit is set to increase to ₹3,000 per month per child. Here’s what that means in rupees:
| Particulars | Until 31 Mar 2026 | From 1 Apr 2026 |
|---|---|---|
| Tax-free CEA per month (per child) | ₹100 | ₹3,000 |
| Per year (per child) | ₹1,200 | ₹36,000 |
| Per year (two children) | ₹2,400 | ₹72,000 |
| Tax saved per year (30% slab + 4% cess) | ≈ ₹749 | ≈ ₹22,464 |
That’s a 30x jump. This exemption applies for a maximum of two children.
Source: Rule 15, Table IV, Draft Income-Tax Rules, 2026. Published by CBDT on 7 February 2026. Read the official draft here
There’s a hostel allowance too.
Hostel expenditure allowance – claim this one too
If your child stays in a hostel for their education, there’s a separate allowance for that too.
The old limit to claim exemption was ₹300 per month per child - again, barely enough to matter. Under the Income-Tax Rules, 2026, that’s set to increase to ₹9,000 per month per child. And yes, you can claim both CEA and hostel allowance together. Here’s what that looks like:
| Particulars | Until 31 Mar 2026 | From 1 Apr 2026 |
|---|---|---|
| Tax-free hostel allowance (per month, per child) | ₹300 | ₹9,000 |
| Per year (per child) | ₹3,600 | ₹1,08,000 |
| Per year (two children) | ₹7,200 | ₹2,16,000 |
| Tax saved per year (30% slab + 4% cess) | ≈ ₹2,246 | ≈ ₹67,392 |
That’s also a 30x jump and capped at two children.
The deduction you can claim yourself
This one works differently from the first two. CEA and hostel allowance come from your employer. This one you claim yourself while filing your ITR, based on actual tuition fees paid during the year.
Under Section 123, you can claim up to ₹1.5 lakh per year for tuition fees as part of your overall Section 123 limit. A few things worth knowing before you claim it:
- It covers tuition fees only – not the full school fee bill. Development fees, activity charges, transport, and donations don’t count.
- The institution must be a school, college, or university in India.
- It applies for full-time education only, for a maximum of two children.
- The ₹1.5 lakh limit is shared with all other Section 123 investments such as PPF, ELSS, life insurance premiums. If you’ve already maxed it out elsewhere, this deduction won’t add anything further.
Ask your child’s school for a fee receipt that separately breaks out tuition fees from other charges. That’s the number you actually claim, not the total amount on the bill.
And there’s more to the education, if you’ve taken loan.
Took an education loan for your child?
So, if your child has taken a loan for higher education, there’s the fourth benefit you get.
Under Section 129 of the Income Tax Act, 2025 (previously Section 80E), you can claim a deduction on the interest paid on that loan:
- It covers interest only, not the principal repayment.
- There’s no upper limit on the deduction, and hence you can claim the full interest amount.
- The deduction is available for up to 8 years, starting from the year you begin repaying.
- The loan must be taken from a financial institution or an approved charitable institution, for higher education in India or abroad.
- It applies to loans taken for your own education, your spouse’s, your children’s, or a student for whom you are the legal guardian.
And all the above deductions and exemptions come down to choosing the right regime.
Old regime vs new regime – which one are you on?
All four benefits: CEA, hostel allowance, tuition fee deduction and interest on education loan are available only under the old tax regime. If you’re on the new regime, none of them apply.
Here’s the thing, India made the new regime as the default in April 2023 and if you’ve never actively opted for the old regime, you’re most likely on the new one. You should check your salary slip or ask your HR before April to know which regime you’re on.
Here’s the breakdown of the regimes:
| Particulars | Old tax regime | New tax regime |
|---|---|---|
| CEA exemption | ₹3,000/month per child | Not available |
| Hostel allowance exemption | ₹9,000/month per child | Not available |
| Section 123 tuition fee deduction | Up to ₹1.5 lakh | Not available |
| Section 129 education loan interest | Full interest amount | Not available |
| Standard deduction | ₹50,000 | ₹75,000 |
You see, it all comes down to your deductions. If you have two children in school, your employer pays CEA and hostel allowance, and you’re paying tuition fees or have an education loan to pay – the old regime certainly makes more sense for you.
Frequently asked questions
1. Can both parents claim CEA if both are salaried?
Yes, each of you can claim CEA independently from your respective employers. The two-child limit applies per taxpayer, not per household.
2. My company doesn’t pay CEA. Can I still claim Section 123 tuition fee deduction?
Absolutely, the Section 123 deduction is completely independent of your employer. You can claim it while filing your ITR.
3. We already claim CEA. Can we claim hostel allowance too?
Okay so they are two separate benefits: CEA covers education costs, hostel allowance covers residential costs. Claiming one doesn’t affect the other. So you can claim both for the same child.
4. My child just started college. Do fees still qualify for the deduction?
Yes, the Section 123 tuition fee deduction covers full-time education at any recognised school, college, or university in India. College fees qualify just as much as school fees, within the overall ₹1.5 lakh Section 123 limit.
5. I took an education loan for college. How much deduction can I claim?
Yes, under Section 129, you can claim the full interest paid and there’s no upper limit on how much you can deduct. The benefit is available for up to 8 years from the year you start repaying the loan.
If you have questions, drop them below.