Sunday, 3 June 2012

Understanding Tax Benefit Under Section 80D, 80DD, 80DDB

We shall be now discussing on importance and income tax deductions under sections 80D, 80DD and 80DDB for the purpose of tax saving which relate to medical insurance premium, medical expenses on treatment of handicapped dependent and medical expenses on treatment of specified diseases.
In today’s world every family has regular medical expenses. This may be towards a health insurance premium, or expenditure related to a family member’s disability/critical illness. The Income Tax Act of 1961 has made provisions to reduce this burden through tax deductions under section 80D, 80DD, 80DDB.

Section 80D in Respect to Health Insurance Premiums

Expenses incurred towards payment of health insurance premiums, qualify for a tax deduction under section 80D.
Deduction Limit: Amount of health insurance premium paid or Rs. 15000 whichever is less.  For senior citizens, amount of health insurance premium paid or Rs. 20,000, whichever is less.
A further deduction of Rs 15,000 could be claimed, for buying health insurance policy for your parents (Rs 20,000 if either of your parents is a senior citizen). This is irrespective of whether they’re dependent on you or not. No deductions can be claimed for in-laws.
Senior Citizen:  Finance Act, 2012 has proposed to amend age of senior citizen from 65 year to 60 year, effect shall take effect from 01.04.12.
Applicable to: Individual assesses can claim deduction for premiums paid towards health insurance of self, spouse, parents and children.
For HUF assesses, premium paid for insuring the health of any member of the HUF, can be used for deduction.

a.       The premium may be paid by any mode of payment, other than cash.
b.      The health insurance premium that you pay must be from the taxable income applicable for the year you claim. Premiums should not be from gifts received by you.
c.       Part payment of premium is allowed. For example, suppose your parents contribute 50% of their health insurance premium and you pay the balance 50% of their premium. In such a case, you could avail the deduction for the amount contributed by you and your parents too could avail deduction for their contribution.

Finance bill 2012 has also proposed deduction for expenditure on preventive health check-up.
 1.   It is proposed to amend this section to also include any payment made by an assessee on account of preventive health check-up of self, spouse, dependent children or parents(s) during the previous year as eligible for deduction within the overall limits prescribed in the section. However, the proposed deduction on account of expenditure on preventive health check-up (for self, spouse, dependent children and parents) shall not exceed in the aggregate Rs.5,000).

2. It is further proposed to provide that for the purpose of the deduction under section 80D, payment can be made – (i) by any mode, including cash, in respect of any sum paid on account of preventive health check-up and (ii) by any mode other than cash, in all other cases.

3. These amendments will take effect from 1st April, 2013.

Section 80DD for Medical Treatment of Handicapped Dependents

If you are incurring expenditure for the treatment of your handicapped dependent, you could claim a deduction under section 80DD.

Deduction Limit: Rs 50000, or actual expenditure incurred, whichever is lesser. For severe handicap conditions Rs. 1,00,000 is the deduction limit.

Applicable to: Deduction can be claimed for dependent parents, spouse, children and siblings. Dependents must not have claimed any deduction for their disability.
Deductions are permissible in either of the following cases.
a) Costs incurred for medical treatment, training or rehabilitation of a disabled dependent, including amount spent for nursing.
b) Amount paid towards an insurance scheme for the maintenance of your disabled dependent in case of your untimely death.  

Meaning of Disability- Disability means a person suffering from 40% or more of any of the below disabilities. A severe disability condition is 80% or more of the disabilities.
a) Blindness and Vision problems b) Leprosy-cured c) Hearing impairment) Locomotors disability e) Mental retardation or illness.

a) Individuals would need to produce a copy of the disability certificate as issued by the central or state government medical board to claim deduction.
b) Insurance policy obtained must be in your name and should be a policy for life. It could pay either an annuity or a lump sum amount for the benefit of the dependent on your death.
c) If the disabled dependent predeceases you, the policy amount is returned to you, and treated as income for the year in which you receive it, thus fully taxable in your hands.

Section 80 DDB for Treatment of Specified diseases

Medical expenses paid for treatment for self or dependent relatives suffering from specified illnesses as mentioned in rule 11DD, tax benefit can be claimed under section 80DDB.

Deduction Limit: For individual assesses  a deduction limit of Rs. 40,000 is applicable. For a senior citizen, the limit is Rs. 60,000.

Applicable to: Deduction is applicable for treatment of self, spouse, children, siblings, and parents, wholly dependent on you.

Diseases covered
a) Neurological Diseases (where the disability level has been certified as 40% or more).
b) Parkinson’s Disease
c) Malignant Cancers
d) Acquired Immune Deficiency Syndrome (AIDS)
e) Chronic Renal failure
f) Hemophilia
g) Thalassaemia

No deduction can be claimed on account of reimbursement for the treatment from insurance company or employer. However, in case of partial reimbursement, the balance amount can be used for a deduction.
A certificate would be required from a specialist working in a government hospital, as proof for the specified ailment.

Senior Citizen:  Finance Act, 2012 has proposed to amend age of senior citizen from 65 year to 60 year, effect shall take effect from 01.04.12.