Income Tax Exemptions for Disable Dependents: All you Should Know

Who is eligible to claim a tax deduction?

The tax deduction under Section 80DD of the Income Tax Act of 1961 applies to individuals or members of a Hindu Undivided Family (HUF) who are Indian residents during the assessment year with a disabled dependent that they support entirely. A parent, spouse, child, or sibling of an individual, or any member of a HUF, is considered a dependent whose expenses related to a disability can be claimed for a tax deduction. People who claim a deduction under Section 80U, which is provided directly to people with disabilities, are not eligible for a deduction under Section 80DD. Taxpayers who choose to file under the new income tax regime, announced in the Union Budget 2020, would forgo the deduction under Section 80DD they were entitled to under the old plan.

What expenses qualify for deductions?

Exempt expenses include any costs incurred for medical treatment, such as the nursing, training and rehabilitation, of the dependent. Medical conditions designated as disabilities in India are defined under Section 2 Clause (i) of the Persons with Disabilities Act, 1995 as well as the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999.

Premium payments toward an insurance policy intended to help in the support and maintenance of a dependent with disabilities, such as term life insurance, are also exempt. The policy cannot be health insurance but can be a plan that pays out an annuity or lump sum as a death benefit for the disabled dependent. In fact, term life insurance plans enjoy an EEE tax status, meaning that contributions, returns and the payout are all exempt from taxation subject to conditions mentioned in the Section 10(10D) of the Income Tax Act, 1961.

How much in deductions can people receive?

Successful claimants are eligible to receive Rs 75,000 for a disabled dependent with between 40% and 80% disability, as defined by the Indian government in the Rights of Persons With Disabilities Act, 2016. A Rs 1.25 lakh deduction is given for a dependent with severe disabilities over 80%. If actual expenses are less than these amounts, the full deduction can still be claimed.

How to claim the deduction

The income tax exemption for disabled family members is obtained after the submission of documents to support the claim, including a medical certificate that proves the disability of the dependent, and medical bills. Medical certificates can be obtained and renewed by a neurologist as well as a civil surgeon, or chief medical officer at any government hospital. If the disability is temporary, tax deductions are only granted for the assessment years in which the certificate is valid.

If your spouse, child, sibling, or parent lives with a disability, you cannot afford to leave their future to chance. Term life insurance and other products can help you prepare and deliver much-needed tax breaks in the present. Now is the time to find a tax saving life insurance plan that suits your needs so that more of what you earn can be devoted to the medical care, training and rehabilitation of your loved one. Talk to your insurance advisor about the best life insurance policy to secure your family's future and engage a tax specialist about how to maximize tax saving deductions for disabled dependents. Utilise the guaranteed income plan calculator as an assisting tool in your savings planning journey.

*Tax laws are subject to change from time to time. Please consult your tax advisors before taking any final decision.