TL;DR: Maximizing Education Funds by Saving more taxes in 2026
Effective education planning in 2026 requires choosing the right tax regime to maximize savings. The Old Regime favors parents with heavy deductions, offering benefits under Section 80C (SSY, PPF, ELSS, and tuition fees) and Section 80E (unlimited education loan interest), as well as hostel allowances.
Conversely, the New Regime offers lower tax rates but eliminates most deductions. It suits those with minimal investments who prioritize simplicity. To optimize your child’s future corpus, compare the two regimes annually and leverage high-performing tools like the Sukanya Samriddhi Yojana or mutual funds to ensure every rupee works harder.
Parents in India can use a mix of tax-saving investments and deductions to build an education corpus for their children, but the strategy differs sharply under the old and new tax regimes. In 2026, choosing the right combination of Section 80C/80E benefits (old regime) versus lower tax rates with fewer deductions (new regime) is critical if you want to both grow your child’s education fund and minimise tax outgo.
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Old vs New Tax Regime: Why It Matters for Education Planning
Under the old tax regime, you get a wide range of deductions and exemptions: Section 80C (₹1.5 lakh), 80D (health insurance), 80E (education loans), tuition-fee deduction, and children’s education/hostel allowance, but tax slabs are relatively higher. The new regime offers lower slab rates and a higher basic exemption/87A rebate. Still, almost all standard deductions—80C, 80D, 80E, HRA, etc.—are unavailable, with only limited benefits (such as some NPS deductions) surviving.
For parents aggressively investing in their child’s education and using SSY/PPF/ELSS/tuition-fee deductions, the old regime often still works out better; those with minimal deductions may prefer the new regime’s simpler, lower rates. A quick tax comparison or calculator run before filing is therefore essential each year.
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Tax-Saving Investments Earmarked for Kids’ Education (Old Regime)
These options help you build the education corpus and save tax at the same time—but their full tax benefit is primarily restricted to the old regime.
Sukanya Samriddhi Yojana (SSY) – For Girl Child
- Government scheme exclusively for girls under 10; parents can invest up to ₹1.5 lakh per year.
- Interest around 8–9% p.a., compounded annually; maturity after 21 years, with partial withdrawal allowed after 18 years for education.
Tax treatment (old regime):
- Contribution eligible under Section 80C (within ₹1.5 lakh cap)
- Interest and maturity are tax-free – classic EEE (Exempt-Exempt-Exempt).
Public Provident Fund (PPF)
- 15-year government-backed scheme; can be opened in a parent’s name or a minor’s name.
- Combined investment cap of ₹1.5 lakh per year.
- Contributions qualify under Section 80C; interest and maturity are tax-free (EEE).
ELSS (Equity-Linked Savings Scheme)
- Tax-saving mutual funds with a 3-year lock-in.
- Suitable for long-term goals like higher education (10+ years).
- Eligible under Section 80C; gains are taxed as equity capital gains on redemption.
Child Education / Child ULIP Plans
- Insurance-cum-investment products designed for future education funding.
- May include a premium waiver on the parent’s death.
- Premiums eligible under Section 80C (subject to conditions); maturity may be tax-free under Section 10(10D).
Other Section 80C Options
- EPF/VPF, 5-year tax-saving FDs, NSC, and certain life insurance premiums.
- Not child-specific, but can be earmarked for education within the ₹1.5 lakh limit.
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Deductions and Allowances Linked to Children’s Education (Old Regime)
Tuition Fee – Section 80C
- Deduction available for tuition fees paid to recognised institutions in India.
- Applicable for up to two children.
- Excludes donations, development fees, transport, hostel, books, etc.
- Shares the overall ₹1.5 lakh 80C limit.
Children’s Education & Hostel Allowance
- Children’s Education Allowance: ₹100 per month per child (maximum two children).
- Hostel Expenditure Allowance: ₹300 per month per child (maximum two children).
Education Loan Interest – Section 80E
- Full interest deduction available with no monetary cap.
- Applicable for loans taken for higher education in India or abroad.
- Available for up to 8 consecutive years.
- Not available under the new tax regime.
Health Insurance – Section 80D
- Premiums for family health insurance, including children, qualify under 80D.
- Helps protect education planning from medical contingencies.
- Generally unavailable under the new regime.
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New Regime: When Does It Make Sense for Parents?
- Parents with minimal deductions.
- No major education loan interest or housing loan interest.
- Preference for simplicity and lower slab rates.
Parents can still invest in SSY, PPF, mutual funds, or child plans for wealth creation even though tax deductions are unavailable. Employer-provided education or hostel allowance exemptions may still apply under Section 10.
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Putting It Together: Practical Strategy for 2026
Under the Old Regime (Heavy Education Planning)
- Use SSY (for daughters) or PPF/ELSS as anchors for the education corpus.
- Claim tuition fees for up to two children.
- Include an education allowance and a hostel allowance in the salary structure.
- Plan education loans to maximise Section 80E benefits.
- Use SIPs in non-ELSS funds for higher education beyond 80C limits.
Under the New Regime (Low-Deduction Profile)
- Focus on SIPs in equity/debt mutual funds and PPF.
- Ignore tax deductions while calculating returns.
- Review annually whether switching regimes makes sense.
Framed correctly, education planning in 2026 is not just about picking products; it is about choosing the proper tax regime and layering investments and deductions to maximise outcomes for your child’s future.
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