The minister, however, underlined that the limit was introduced as part of a Cabinet decision on pay hikes and the decision was not just hers to take.
Ms Sitharaman's acknowledgement of the outrage over the cap came hours after Naval Chief Admiral Sunil Lanba asked the ministry to revisit the decision. "This small gesture would assure the families of our brave women and men that the nation cares for them and their sacrifices are truly appreciated by the government," Admiral Lanba, also the Chairman, Chiefs of Staff Committee, had written to her.
In Ahmedabad, the minister told reporters late on Tuesday that she was "fully seized" of the matter.
"I know it is a very sentimental issue. I am fully seized of it. I respect martyrs, their families and the sentiment which is tied to it. We all respect it," Ms Sitharaman said.
She added that the cap was a fall-out of the report of the seventh pay panel. "There were recommendations, recommendations were accepted, Cabinet took a call on it. Therefore there is some process that has taken place. Alright, this is hurting us. I will go back to consider it," she said.
"This government is never against the will of, particularly our soldiers, particularly our gallantry award winners, particularly those disabled soldiers. I have understood the sentiment which is going on. It is not as if I have done something myself," she said.
The reimbursement of the education expenses of children of soldiers killed in the line of duty was first introduced two days after the armed forces won the 1971 war which led to the creation of Bangladesh. This was a gesture to convey the country's gratitude and support towards the children and widows of soldiers killed in the war.
Over the years, there was a demand that this concession should be extended to personnel of the central armed police forces such as the Border Security Force and the Indian Coast Guard.
The pay panel accepted this demand but also stipulated that the monthly expenditure on tuition fee and hostel charges should not exceed Rs 10,000 per child.
According to estimates, nearly 3,400 children of armed forces personnel were impacted by the decision.