Updated on: 4th August, 2023
It goes without saying that we want to look after the people we care about when we become older. However, a stronger commitment is required when a loved one has a disability that necessitates round-the-clock care. It is just as crucial to meet their daily needs as it is to ensure their future.
Key takeaways
- The deduction is allowed for the dependent, disabled individual and not the taxpayer.
- The disability of the dependent individual should be more than 40%.
- The dependent, disabled family member for a resident individual can be defined as a spouse, a parent, a child, or a sibling.
- The dependent disabled person, in the case of a HUF, can be any member of the HUF.
The most recent health crisis has served as a strong reminder of the life-altering impact pandemics, and other disasters can have on vulnerable people and their families. A sudden illness or accident can be tough to overcome without a financial plan to offer a safety net for your loved ones.
This is why putting together a mix of financial instruments, including life insurance, is crucial to safeguarding your family. In addition, the increased duty of supporting a loved one who has a disability necessitates the creation of a long-term financial plan for their care. While these investments assure the financial security of loved ones in the future, significant tax benefits are now available for the support and maintenance of a differently-abled dependent under the Income Tax Act 1961.
Section 80DD of the Income Tax Act, 1961
Income tax is a tax collected by the Government of India from the earning members of the nation. It is calculated based on the gross yearly income and can differ as per the income capabilities of the individual. The collection, monitoring, and administration of this tax are governed under the Income Tax Act of 1961. This act not only authorizes tax collection but also states tax benefits and deductions that can be used to lower a person’s tax liability. For people with a physically handicapped dependent, this act offers provisions under Section 80DD deduction.
Section 80DD of the Income Tax Act 1961 allows individuals to claim tax-saving deductions for disabled and financially dependent family members.
Eligibility Criteria
The following criteria are crucial to claim income tax exemption for disabled dependents:
- This tax deduction is only allowed for resident individuals and Hindu Undivided Families (HUFs).
- Since the tax deduction is not allowed for Non-Resident Individuals (NRIs), they cannot claim this deduction.
- People who claim a deduction under Section 80U, which benefits people with disabilities directly, are not eligible for a deduction under Section 80DD deduction.
- Taxpayers who choose to file under the new income tax regime outlined in the Union Budget 2020 will lose the deduction under Section 80DD that they received under the previous scheme.
- Disabilities covered to qualify for tax deduction under Section 80DD:
Terms and Conditions to Claim Income Tax Exemption for the Physically Disabled Dependent
The following conditions have been mandated by law to claim tax deduction under Section 80DD:
- The deduction is allowed for the dependent, disabled individual and not the taxpayer.
- The disability of the dependent individual should be more than 40%.
- The dependent, disabled family member for a resident individual can be defined as a spouse, a parent, a child, or a sibling.
- The dependent disabled person, in the case of a HUF, can be any member of the HUF.
- If the dependent, disabled individual has already claimed a deduction under Section 80U for themselves, the taxpayer cannot avail of another deduction for the dependent individual.
- The taxpayer should have paid for the expenses arising out of healthcare costs for the disabled dependent individual. This can include nursing, rehabilitation, and training.
- Amount Claimed as Deduction for Physically Disabled Dependent
The following sum can be claimed as a deduction:
Taxpayers with dependent, disabled individuals with a 40%-80% disability can claim ₹75,000
Taxpayers with dependent, disabled individuals with 80% or more disability can claim ₹1,25,000.
Documents Required to Claim Deduction Under Section 80DD
In order to claim the deduction under Section 80DD, certain documents need to be furnished. What are the important documents that need to be kept in mind? Let us understand them here.
Disability Certificate
The foremost document required to claim a deduction under Section 80DD is a valid disability certificate. The certificate should be issued by a competent medical authority, which may include a specialist in neurology, psychiatry, or a government hospital. The disability certificate must clearly state the extent of the disability, mentioning whether it is above 40% or severe in nature.
Form 10-IA
Along with the disability certificate, individuals need to submit Form 10-IA, which is a certificate of disability issued by a prescribed authority. This form contains details about the disabled person, the nature of the disability, and the percentage of disability. It is important to fill out this form accurately and have it certified by the competent medical authority.
Medical Expenditure Receipts
To claim a deduction under Section 80DD, individuals must have incurred medical expenditure on the treatment and rehabilitation of the disabled dependent. It is essential to keep all the original medical bills, receipts, and prescriptions as proof of the expenses. These documents should clearly mention the name of the patient, the nature of the treatment, and the amount paid.
Receipts for Specified Disability-Related Expenses
Apart from medical expenses, Section 80DD also allows for a deduction on certain disability-related expenses. This includes expenses incurred on nursing, training, and rehabilitation of the disabled dependent. Individuals must maintain the receipts and bills for these expenses as well, which may include fees paid to special schools or vocational training institutes.
Bank Statements
In addition to the aforementioned documents, it is advisable to keep bank statements or any other proof of payment for medical and disability-related expenses. These statements will serve as evidence of the actual expenditure made and can be useful during the assessment of the claim.
Expenses that are Deducted for Income Tax Calculation
By familiarizing yourself with the expenses that qualify for deductions, you can optimize your tax planning and potentially save a substantial amount of money. Here are some common expenses that are deducted for income tax calculations.
Under section 80DD, there exists an income tax deduction of ₹50,000 for what was previously defined as a disabled dependent (with a disability of 40% or more). However, since 2016, this limit has been increased to ₹75,000.
Similarly, under the same section, an income tax deduction of ₹50,000 is allowed for what was earlier categorized as a severely disabled dependent (with a disability of 80% or more). Nevertheless, since 2016, this limit has been raised to ₹1,25,000.
Who is Defined as a Disabled Dependent According to Income Tax Laws?
According to income tax laws, a disabled dependent is an individual who meets specific criteria, both in terms of disability and dependency. The key elements that determine the eligibility of an individual as a disabled dependent are as follows:
Relationship to the Taxpayer
The disabled dependent must be related to the taxpayer in one of the following ways: a child (including stepchild, foster child, or legally adopted child), a sibling (including step-sibling), a parent (including stepparent or legally adoptive parent), or a descendant of any of these individuals (such as a grandchild).
Support and Dependency
The disabled individual must rely on the taxpayer for more than half of their financial support during the tax year. This support includes expenses related to food, housing, medical care, transportation, and other necessities.
Age Requirements
Typically, there is no age restriction for a disabled dependent. However, in certain cases, such as claiming a disabled child, the dependency status might change after the child reaches a specific age. It is important to review the specific regulations based on the taxpayer’s circumstances and jurisdiction.
What Kind of Disability or Severe Disability is considered under Section 80DD?
To claim tax benefits under Section 80DD deduction, it is crucial to understand the criteria for qualifying disabilities or severe disabilities. The section distinguishes between disabilities and severe disabilities, with different provisions and benefits for each category. Let us explore these distinctions further:
Disability
Section 80DD of income tax act defines disability as a condition recognized by the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation, and Multiple Disabilities Act, 1999. This includes:
- Mental illness - includes mental illnesses or disorders.
- Any hearing impairment - refers to a hearing power of fewer than 60 decibels.
- Autism - includes a person suffering from autism spectrum disorder.
- Mental retardation - refers to someone with incomplete or partial mental development.
- Any locomotor disability - includes joint or muscle disabilities resulting in restricted limb movement.
- Blindness - includes lack of sight by 20 degrees or more, visual acuity less than 6160 with glasses or lenses, or complete blindness.
- Cerebral palsy - refers to a movement or posture disorder usually caused before or at birth due to abnormal brain development.
- Leprosy-cured - includes people who have been cured of leprosy but continue to face challenges like loss of sensation, paresis in eyes, deformities, etc.
- Low vision - includes a low vision that cannot be corrected with surgery.
Provisions and Deductions
- Deduction for Individuals with Disabilities: Under Section 80DD, an individual can claim a fixed deduction of up to ₹75,000 for expenses incurred in the medical treatment, training, or rehabilitation of a disabled dependent.
- Deduction for Severe Disabilities: In cases where the dependent has a severe disability, the deduction limit increases to ₹1,25,000.
- Higher Deduction for Severe Disability with Additional Conditions: If the dependent has a severe disability and is also suffering from a condition that requires prolonged hospitalization or continuous treatment, the deduction limit is further increased to ₹1,00,000.
Other Things to Note for Claim Deduction
While many people are familiar with common deductions like mortgage interest or medical expenses, there are other lesser-known deductions that can further maximize your tax benefits.
Student Loan Interest
If you are paying off student loans, you may be able to deduct up to ₹2,500 in interest paid on qualified student loans. This deduction can be claimed even if you do not itemize your deductions, making it a valuable tax break for many individuals.
State Sales Tax
If you live in a state that does not impose an income tax, you have the option to deduct state sales taxes instead. This can be advantageous if you made significant purchases throughout the year or live in a state with high sales tax rates. The IRS provides a calculator to help you determine the amount of sales tax you can claim.
Home Office Deduction
If you use a portion of your home exclusively for business purposes, you may be eligible for a home office deduction. This deduction allows you to claim expenses related to the use of your home, such as rent, mortgage interest, utilities, and maintenance.
Job Search Expenses
If you were searching for a new job within the same field, you may be able to deduct certain job search expenses. These expenses can include costs related to resumes, travel, and employment agency fees. However, it is important to note that you can only claim these deductions if you are searching for a job in your current occupation.
Self-Employment Deductions
If you are self-employed, there are several deductions available to you that can help reduce your taxable income. These deductions can include expenses related to your business operations, such as office supplies, advertising, and business insurance. Additionally, self-employed individuals can deduct the employer portion of self-employment taxes.
Where Can You Avail of a Medical Certificate for the Disabled Dependent?
Having a disabled dependent requires extra care and attention, and there are certain instances when they may need to provide a medical certificate to validate their condition. Whether it is for educational purposes, employment accommodations, or financial benefits, obtaining a medical certificate is often a necessary step.
Family Doctor or Primary Care Physician
The first and most accessible option is to consult your family doctor or primary care physician. These healthcare professionals have a comprehensive understanding of your dependent’s medical history and can provide an accurate assessment of their disability. They can conduct a thorough examination, review medical records, and provide the necessary documentation to support your claim. Make sure to communicate your specific requirements to your doctor so that they can prepare the certificate accordingly.
Specialized Medical Practitioners
Certain disabilities may require the expertise of specialized medical practitioners. For example, if your dependent has a neurological condition, you might need to consult a neurologist. Similarly, for orthopedic disabilities, an orthopedic specialist would be appropriate. These specialists possess in-depth knowledge of specific disabilities and can provide a detailed assessment along with the necessary medical certificate. If your family doctor refers you to a specialist, it is essential to bring along all relevant medical records and test results for a more accurate evaluation.
Rehabilitation Centers and Hospitals
Rehabilitation centers and hospitals with specialized departments for disabilities can also be valuable resources for obtaining a medical certificate. These institutions often have multidisciplinary teams comprising physicians, therapists, and other healthcare professionals who work together to assess and treat disabled individuals. They can conduct comprehensive evaluations, perform necessary tests, and provide a well-rounded medical certificate based on their findings. Contact the relevant department in the rehabilitation center or hospital to schedule an appointment for your dependent.
Government Medical Facilities
In some cases, government medical facilities may offer services specifically tailored to disabled individuals. These facilities often have specialized departments that deal with disability assessment and certification. These assessments are conducted by experienced healthcare professionals who are well-versed in the criteria required for obtaining a medical certificate. Check with your local government offices or disability support centers to inquire about the availability of such services and the process to obtain a certificate.
Remember, it is crucial to provide accurate and honest information about your dependent’s disability during the evaluation process. Providing misleading or false information could not only lead to the denial of a certificate but also have legal implications. The medical certificate serves as official documentation of your dependent’s disability and is often required for accessing various rights and benefits.
Wrapping Up
Term life insurance and other products can assist you in planning for and delivering much-needed tax advantages. Now is the time to choose a plan that meets your needs so that you can look after your loved one’s medical care, training, and rehabilitation costs without spending a fortune. Consult your financial advisor to determine the best insurance for your family’s future, and engage a tax specialist to determine how to optimize tax savings for disabled dependents.
FAQs
1
Who qualifies for deductions under Section 80DD of the Income Tax Act?
Section 80DD of the Income Tax Act provides deductions to individuals who have incurred expenses for the maintenance and medical treatment of a disabled dependent. To qualify for deductions under this section, the individual must be a resident of India and may be either a salaried employee or self-employed.
2
Who is considered a disabled dependent for tax purposes under Section 80DD of the Income Tax Act?
A disabled dependent, for the purpose of Section 80DD, refers to a person who is wholly or mainly dependent on the taxpayer for their support and has been certified as having a disability by a competent medical authority. The dependent can be a spouse, children, parents, brothers, or sisters of the taxpayer.
3
What are the expenses that can be claimed as deductions under Section 80DD of the Income Tax Act?
Under Section 80DD, the taxpayer can claim deductions for two types of expenses:
a) Maintenance expenses: This includes any amount spent on the medical treatment, nursing, training, and rehabilitation of the disabled dependent.
b) Medical expenditure: This refers to the amount paid towards medical insurance premiums or the specified scheme for the maintenance of the disabled dependent.
4
What are the disabilities for which I can claim deductions under Section 80DD of the Income Tax Act?
Section 80DD allows deductions for various disabilities as defined by the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995. This includes disabilities such as blindness, low vision, hearing impairment, locomotor disability, mental illness, autism, cerebral palsy, and multiple disabilities.
5
Can NRIs claim tax deductions under Section 80DD?
No, NRIs (Non-Resident Indians) cannot claim tax deductions under Section 80DD of the Income Tax Act.
