This paper analyses whether the amount households spend on education depends upon the returns to education prevalent in the region in which they live. To this end, we estimated rates of return to education separately for boys and girls in 33 states and UTs in India. These rates of return were then included in our education expenditure model. Our results clearly indicated that the rate of return to education was highly significant in increasing the amount spent on education by the household both for boys and girls. However, we find that the impact of this variable is much larger at secondary level and for girls.