Kathmandu: The government has introduced a significant tax relief measure for parents by amending the Economic Bill, following widespread criticism of the proposed 3 percent “Education Equity Fee.”
Finance Minister Dr Swarnim Wagle has incorporated a new provision that allows a portion of the expenditure incurred on children’s education to be deducted from an individual’s taxable income. By adding this provision to Section 57 of the bill, the government aims to reduce the overall income tax burden on resident taxpayers, effectively providing a financial cushion against the rising costs of education.
Under the initial proposal presented in the Finance Bill, the Finance Minister had introduced a 3 percent Education Equity Fee on school tuition. Under that system, parents paying an annual fee of Rs. 100,000 would have been required to pay an additional Rs. 3,000 in taxes.
However, the newly amended provision offers a substantial counterbalance. Taxpayers can now deduct 25 percent of the annual tuition fee paid to a resident educational institution or a maximum of Rs. 25,000, whichever is lower, from their total taxable income before their final income tax is calculated.
The practical application of this deduction means that if a parent pays Rs 100,000 in annual school fees, they are eligible to deduct Rs 25,000 from their taxable income. For those with higher expenses, such as an annual fee of Rs. 200,000, the deduction remains capped at the upper limit of Rs 25,000.
Conversely, if the annual tuition cost is lower, such as Rs. 80,000, the deductible amount would be 25 percent of that figure, totalling Rs. 20,000. While the actual monetary savings for a couple earning less than Rs. 1 million per year might be relatively modest at around Rs. 250, those in higher income brackets will see a more significant reduction in their tax liabilities.
The legal framework for this relief is established through the addition of sub-clause (16b) after sub-clause (16a) under Schedule 1 of the Income Tax Act. The amendment specifically states that, regardless of other provisions in the Act, a resident natural person can subtract the lower of 25 percent of the educational fees or Rs 25,000 from their taxable income. This new arrangement, which was quietly revised by the Finance Minister to address the backlash regarding private school inflation, is scheduled to come into full effect starting from the first day of the new fiscal year on July 16 (Shrawan 1).
Finance Minister Wagle’s decision to modify the bill reflects a strategic attempt to balance middle-class concerns with his administration’s social welfare goals. While the tax deduction provides relief to parents, the revenue generated from the 3 percent Education Equity Fee is still earmarked for a specific social cause. The Minister has stated that the funds collected from this fee will be utilized to double the nutrition allowance for Dalit students across the nation. This pivot in the Economic Bill represents a pragmatic policy shift aimed at maintaining social justice initiatives while easing the direct financial pressure on families paying for private education.
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