Chapter 18 Deductions for Disability of Dependent Under Section 80DD - Medical Expenses for Disabled Individual

When a family member is partially or substantially disabled, there is a continuous stream of expenses that you will have to incur on that family member. There are a variety of neurological disorders that are chronic in nature and require long-term care. It is for this reason that the Income Tax Act has provided for a special Section 80DD, which provides an additional rebate if one of your family members is differently-abled or physically challenged. Such persons require continuous care and attention and the costs can add up to quite a bit. This Section 80DD is basically intended as an exemption from total income when you have a relative dependent on you who is differently abled. Relative here is restricted to spouse, children, parents and siblings only. Other relatives will not entitle you to this benefit.

Before going ahead on this discussion on Section 80DD, we need to understand the key distinction between Section 80DD and Section 80U. The limits and conditions are the same in both the sections. The only difference is that Section 80U is utilized when the differently-abled person claims the tax benefit. If the differently abled person has a steady source of income, then they can claim tax benefits under Section 80U. The same benefit can be claimed by an assessee on behalf of his/her relatives if the differently-abled person is dependent on them. The key here is that if the person is already claiming benefits under Section 80U for the disability, then you cannot claim benefits under Section 80DD, by showing that the said relative is dependent on you. The two sections are structured in such a way that you can only use one of them; either Section 80DD or Section 80U. This understanding is fundamental to the understanding of this section. Now, let us first get to the nitty-gritty of Section 80DDB.

Who can claim Section 80DD benefits and under what circumstances?

Deduction under section 80DD of the income tax act is allowed only to Resident Individuals or Hindu Undivided Family (HUF) on behalf of a dependant relative who is differently abled (the Act clearly defines what is a differently-abled person and the conditions to be met) and is wholly dependent on the individual (or HUF) for support & maintenance.

To be eligible for Section 80DD benefits, the assessee needs to meet the following conditions.

• Deduction for an assessee under Section 80DD is allowed for a dependent of the tax payer and not the tax payer himself. Self-claims for being physically challenged or differently abled have to be made under Section 80U as explained before.
• That logically means that the taxpayer is not allowed this deduction if the dependant has claimed a deduction under section 80U for himself/herself. As we stated earlier, these two provisions of Section 80DD and Section 80U are mutually exclusive to each other.
• Who is defined as a “dependent” under Section 80GG has also been clearly laid out in the Act itself? Dependent in case of an individual taxpayer means spouse, children, parents, brothers & sisters (siblings) of the taxpayer. Here, children include both biological children and adopted children, but do not include illegitimate children. In case of an HUF, a dependent refers to any member of the HUF. They may or may not be the coparceners.
• The pre-condition for the eligibility of Section 80GG is that expenses must have been incurred by the assessee on behalf of the relative who is differently abled. The taxpayer may have incurred these expenses towards medical treatment (including nursing), medicines, disposables, training & rehabilitation of the differently abled dependant. Alternatively, the assessee could have also deposited in a scheme of LIC or another insurer for maintenance of the dependant and such schemes are offered by various insurance companies that are specifically for the purpose of claiming Section 80GG benefits under the Income Tax Act.
• The Income Tax Act also defines the levels of disability based on the extent of disability caused to the dependent relative of the assessee. The principal condition for the eligibility of Section 80DD is that the disability of the dependant is not less than 40%. Of course, there are different slabs of eligibility for disability between 40-80% and disability above 80%, for which you can claim deductions appropriately.
• The exact definition of disability and the nature of eligible disabilities are clearly defined and laid out under section 2(i) of the Persons of Disabilities Act, 1995.

What is the amount of deduction that the assessee can claim under various conditions?

The table captures below the extent of disability and how it determines the exemption available under Section 80DD of the Income Tax Act.

In the above table, it can be seen that currently, the Section 80DD exemption is available in case of the disability being above 40% only. Any disability below 40% does not make you eligible to claim deduction under Section 80DD of the Income Tax Act.

Illustration 1:

Mayank’s cousin brother is physically challenged by early stages of cerebral palsy, and Mayank has been spending Rs.25,000 each month for his treatment. His doctors have certified as a person with 50% disability. He has been told by his friend that he can claim deduction under Section 80DD. How much is Mayank entitled to claim?

In this case, the afflicted person is a cousin brother of Mayank. The Income Tax Act only permits such deductions under Section 80DD for relatives and that includes spouse, children, parents, and real siblings. In this case, Mayank has been spending the money for his cousin brother (who does not fall into the definition of eligible relative). Hence, Mayank will not be entitled to any tax benefit under Section 80DD.

Illustration 2:

Raghav’s father and mother are both dependent on him. Both are classified as differently abled. While his father has certified 60% disability, his mother has certified 85% disability. During the last year, he spent Rs.50,000 on his mother’s treatment and Rs.35,000 on his father’s treatment. How much deduction is Raghav eligible under Section 80DD of the Income Tax Act?

There are some basic points we need to understand in Raghav’s case. Let us highlight the key points below:

• Because they are Raghav’s mother and father, both are eligible as relatives, and hence, Raghav can claim Section 80DD benefits for both of them.
• Since his father has 60% disability, Raghav will eligible to claim a flat deduction of Rs.75,000 in his father’s case.
• As Raghav’s mother is 85% disabled, Raghav’s spending on her treatment will quality him to claim exemption to the tune of Rs.1.25lakh in his mother’s case.
• Raghav has spent Rs.50,000 for his mother ‘s treatment and Rs35,000 for his father’s treatment. However, what is required is that the money has been spent. The quantum of money is not important. Even though Raghav has spent only part of his eligibility, he will still get the full benefit in case of both his parents.
• This effectively means that Raghav will get an exemption of Rs.1.25lakh in case of his mother and Rs75,000 in case of his father. From his total income, Raghav will be eligible to deduct an amount of Rs.2lakh under Section 80GG, and his taxable income will stand reduced to that extent.

Illustration 3:

Chandresh is spending Rs.10,000 on his sister’s treatment of a degenerative disease. His sister is claiming benefits under Section 80U. Can Chandresh also claim exemption under Section 80DD?

As has been stated clearly, Section 80U and Section 80DD are mutually exclusive to each other. If Chandresh’s sister who is differently-abled is already claiming the exemption under Section 80U, Chandresh will not be eligible to claim under Section 80DD. Only one of them can claim this benefit.

Illustration 4:

Partho Ghosh, an NRI based out of Dubai has taken an insurance policy on behalf of his younger sister in India who is suffering from a locomotor disability. Does the insurance premium payment qualify as spending under Section 80DD?

There are two parts to this question. Firstly, does the insurance policy premium payment for disability qualify as an expense? The answer is that it does qualify as an expense and entitles you to tax exemption under Section 80DD of the Income Tax Act. However, in this case, it needs to be noted that Partho Ghosh is an NRI settled in Dubai. This Section 80DD exemption is only available to resident Indians and to HUFs. Since Partho Ghosh is an NRI, he will not be eligible to claim exemption under Section 80DD of the Income Tax Act.

Who is eligible for claiming Deduction under Section 80DD

• Only an individual or HUF (Hindu Undivided Family) who is a Resident of India during the previous year is eligible to claim this deduction under Section 80DD.
• This tax deduction is not available to NRIs (Non-Resident Indians), even if they meet all the other conditions required to claim Section 80DD benefits.

How does the Income Tax Act define a Disabled Dependent under Section 80DD?

• For individuals, a disabled dependent can be a spouse, son/daughter (any child), parents, or brothers/sister (only immediate siblings). Anyone other than these relatives will not qualify the assessee to claim Section 80DD exemption.
• For HUFs, a disabled dependent can be any member of the HUF. All blood descendants of the Karta and the coparceners automatically become members of an HUF, and exemptions can be claimed accordingly.

Note: The disabled person should be dependent on the person claiming deduction and should not have claimed deduction under Section 80U of the Income Tax Act. List of expenses that are eligible for deduction under Section 80DD exemption

• Any expenditure made towards medical treatment, nursing, training, and rehabilitation of a dependent person with disability.
• Any amount paid as premium for a specific insurance policy designed for such cases. The policy must satisfy the conditions mentioned in the law.
• If the disabled dependent predeceases the person claiming deduction under this section, an amount equal to the amount of premium paid shall be considered to be the income of the claimer for the previous year (i.e., the year in which such an amount is received by the claimer/assessee) and shall be chargeable to tax.

What is the total exemption available under Section 80DD of the IT Act?

Deduction allowed varies depending on whether the dependent person has disability or severe disability. This is defined in terms of percentage of disability.

A. Dependent person with disability

• If the dependent person has at least 40% of any of the specified disability, then he is considered a person with disability.
• Hence, the individual taking care of the medical expenses of dependent person with disability can get tax deduction of Rs.75,000.

B. Dependent person with severe disability

• If the dependent person has at least 80% of any disability, then he is considered a person with severe disability.
• Hence, the individual taking care of the medical expenses of a dependent person with severe disability can get tax deduction of Rs.1,25,000

What are the specific disabilities that are covered under section 80DD

As per the Income Tax Act 1961, a comprehensive list of such disabilities have been identified for this purpose. The following disabilities are covered under section 80DD of the Income Tax Act, 1961:

• Blindness
• Low vision
• Leprosy-cured
• Locomotor disability
• Hearing impairment
• Mental retardation
• Mental illness
• Autism
• Cerebral palsy

Do you require certification from a qualified doctor?

The Income Tax Act has identified and authorized specific medical officers to certify the existence of the disability and also the nature and extent of the disability. Such authorized persons under the act include:

• A Civil Surgeon or Chief Medical Officer (CMO) of a government hospital
• A Neurologist with an MD in Neurology
• In case of children, a Paediatric Neurologist having an equivalent degree

What are the documents required to claim deduction under section 80DD?

The section 80DD is all about providing tax deductions to individuals and/or HUFs for caring for a disabled dependent. The assessee will require the following documents to claim tax benefits of section 80DD.

• Medical Certificate:
  You will be required to produce/submit a medical certificate authenticating the disability of your dependent from a certified medical authority as defined by the law. The competent persons have been defined above.
• Form 10-IA:
  In case your disabled dependant is suffering from Autism, Cerebral Palsy or multiple disabilities, the assessee will need to produce form number 10-IA. Such forms are available for free download in PDF and Word Format on the website of the Income Tax Department.
• Self-declaration certificate:
  You also need to furnish a self-declaration certificate stating the expenses incurred by you on your differently-abled dependant for his/her medical treatment (including nursing), training, and rehabilitation.
• Receipts of Insurance Premium Paid, if any:
  Since a self-declaration certificate is enough for claiming most expenses, you do not need to keep actual receipts of those expenses. However, if you want to claim any deduction payment towards any insurance policies taken for a disabled dependant, you need actual receipts of expenses. Such policies can also be taken only for dependent as defined by the Income Tax Act 1961.

Illustration 5:

Manek has spent Rs45,000 as expenses for caring for his disabled and dependent wife. How much deduction can Manek claim u/s 80DD for the year?

Incidentally, Manek can claim the full amount of Rs.75,000 as deductions under this section in case his wife is disabled dependent and Rs.1.25lakh in case she is a severely disabled dependent, irrespective of the amount actually spent during the year on care.

Section 80DDB (A slight variation of Section 80DD)

For certain specific diseases, Income Tax Department offers tax benefits to the individual u/s 80DDB on the basis of expenses actually incurred by the assessee for the treatment of such diseases or ailment.

Eligibility criteria for deduction u/s 80DDB

• Tax deduction under section 80DDB is available to all resident individuals as well as HUFs.
• However, tax benefits are not available to NRIs.
• In case the assessee is an individual, he can claim tax deduction if he/she incurs expenses for his own treatment or treatment of a dependent.
• In case the assessee is an HUF, it can claim tax deduction for the expenses incurred in the treatment of any member of HUF.

Who qualifies as a dependent?

For the purpose of this section, dependents fall in two categories:

• For individuals, a disabled dependent can be a spouse, son/daughter (any child), parents, brother/sister (siblings).
• For HUFs, a disabled dependent can be any member of the HUF.

Specified diseases or ailments

The following diseases specified under rule 11DD qualify for tax deduction u/s 80DDB. However, a prescription in respect of diseases or ailments is required from the specialists as mentioned below:

• Neurological diseases where the disability level has been certified (prescription issued by Neurologist having ‘Doctorate of Medicine’ degree or equivalent qualification) to be of 40% and above:
  a. Dementia
  b. Dystonia Musculorum Deformans
  c. Motor Neuron Disease
  d. Ataxia
  e. Chorea
  f. Hemiballismus
  g. Aphasia
  h. Parkinson’s Disease
  
• Malignant Cancers (prescription issued by Oncologist having Doctorate of Medicine degree or equivalent qualification)
• Full Blown Acquired Immuno-Deficiency Syndrome (AIDS) (prescription issued by any specialist having a post-graduate degree in General or Internal Medicine or equivalent qualification)
• Chronic renal failure (prescription issued by a Nephrologist/Urologist having Doctorate of Medicine degree or equivalent qualification)
• Haematological disorders (prescription issued by a Haematologist having Doctorate of Medicine degree or equivalent qualification):
  a. Haemophilia
  b. Thalassemia
  

In case the person being treated was treated in a government hospital, the prescription may be issued by any specialist working full-time in that hospital and having a post-graduate degree in General or Internal Medicine or any equivalent degree, which is recognized by the Medical Council of India.

The prescription should contain the name and age of the patient, name of the disease, or ailment along with the name, address, registration number, and the qualification of the specialist issuing the prescription.

If the patient is receiving treatment in a government hospital, such prescription shall also contain the name and address of the government hospital.

Deduction limit u/s 80DDB

The deduction limit depends upon the actual expense incurred and age of the person for whose treatment the money was spent.

• In normal cases, the assessee (individual or HUF) is eligible for tax deduction of Rs.40,000 or the actual amount spent, whichever is less.
• In case the person subject to medical treatment of specified disease is a senior citizen (above the age of 60, but below the age of 80), the assessee will be eligible for tax deduction of Rs.60,000 or the actual amount spent, whichever is less.
• In case the person subject to medical treatment of specified disease is a super senior citizen (above the age of 80), the assessee will be eligible for tax deduction of Rs.80,000 or the actual amount spent, whichever is less.

Amount of deduction allowable under this section as per the limits mentioned above will be reduced by the amount received (if any), under an insurance from an insurer, or reimbursed by an employer, for the medical treatment of the person specified. Only the net amount will be admissible under Section 80DDB in such cases.