Section 80DD Income Tax Deduction : All Need to Know About

The rate of medical inflation has been increasing since the last few decades. A constant rise in treatment costs makes it difficult to fund medical expenses from your hard-earned money. It can get even more challenging to manage your finances and the treatment costs when you have a person with special needs at home. Hence, the Income Tax Act of 1961 allows certain deductions for payments associated with the maintenance of a person, who is classified as a disabled individual.

What is Section 80DD?

Section 80DD of the Income Tax Act enables a person to claim an expenditure deduction if incurred for the medical treatment, training or rehabilitation of a dependent suffering from a disability. Not only is this section allowing direct medical expenses but also premiums payable towards specific insurance policies in respect of such treatments. For a dependent's disability to qualify for a deduction, it must be certified under rules prescribed in the Act by a recognised medical authority. The primary purpose of such a deduction is to reduce the burden associated with caring for a disabled dependent and enhance the accessibility to necessary treatments through economic incentives.

Maximum Amount of Deduction under Section 80DD

The maximum deduction available under Section 80DD is up to Rs 75,000 for persons with disability and Rs 1,25,000 for severe disability.

Conditions to Avail of Section 80DD Deduction

To qualify for the Section 80DD deduction, the taxpayer must be a resident individual or HUF, and the dependent person must have a disability as certified by a prescribed medical authority. The dependent could be the spouse, children, parents, or siblings of the individual. A valid disability certificate from a medical authority as specified under the Act is required.

Eligibility Criteria of Section 80DD

The deduction under section 80DD of the Income Tax Act can be claimed not only by an individual, but also any Hindu Undivided Family (HUF) caretaker paying for it. This deduction under Section 80DD of Income Tax Act is not available to foreign national or NRIs, as the governments in those countries have several programs for medical treatments. *

Required Documents of Section 80DD

To claim the deduction under Section 80DD, the following documents are necessary. These 80DD documents required serve as evidence for the expenditures made and are essential for verifying the authenticity of the claims during the tax filing process.

1. A valid medical certificate issued by a recognised medical authority confirming the disability of the dependent.
2. Receipts and bills for the expenses incurred in the medical treatment, training, and rehabilitation of the disabled dependent.
3. If insurance policies specific to these treatments have been purchased, details and proof of premium payments are required.

80DD Deduction Diseases Covered List

The disabilities covered include:

1. Blindness
2. Low vision
3. Leprosy-cured
4. Hearing impairment
5. Loco-motor disability
6. Mental retardation
7. Mental illness
8. Autism
9. Cerebral palsy and multiple other disabilities.

Which Expenses are Deductible Under Section 80DD of Income Tax Act?

The following expenses are allowable as a deduction in your return of income, helping to lower the overall tax liability:

1. The payments related to medical treatment, including nursing, training, and any rehabilitation that may be required.
2. Any payment made to a scheme framed by life insurance companies for insuring the health of such individuals (subject to conditions specified in the policy).

Note: Please note that tax benefit is subject to change in tax laws.

Which Ailments are Classified As Disability Under Section 80DD?

Ailments that are defined as per section 2 of the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 and clause (a), (c) and (h) of section 2 of the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 are considered as a disability under section 80DD. These ailments include autism, cerebral palsy, and multiple disabilities in its purview. *Note: Please note that tax benefit is subject to change in tax laws.

Difference Between Section 80U and Section 80DD

Section 80U and Sec 80DD of the Income Tax Act both provide deductions but serve different beneficiaries. Section 80U is applicable to the taxpayer with a disability, offering a deduction for their own disability-related expenses. Section 80DD, on the other hand, is designed for taxpayers who do not have a disability themselves but are financial caretakers of disabled dependents. This differentiation ensures that both individuals with disabilities and those caring for disabled dependents receive necessary financial support through tax benefits.

Limitations of Section 80DD

While Section 80DD provides critical financial support, there are limitations to its applicability. If the dependent with a disability claims a deduction under Section 80U for themselves, then the deduction under Section 80DD for that dependent is not available to anyone else. Any reimbursements received for these expenses from an insurer or employer will negate the eligibility for this deduction. These restrictions are intended to prevent the misuse of the provision and ensure that the benefit is only availed by eligible taxpayers.

Benefits of Claiming 80DD

Claiming a deduction under 80DD offers substantial tax benefits, directly reducing the taxable income of those caring for disabled dependents. The advantage of such claims goes beyond monetary gains, creating a supportive environment for the differently-abled by easing the financial commitments of their caregivers.

Eligibility for Claiming Deductions u/s 80DD

Eligibility extends to all resident individuals or HUFs who care for a dependent with a specified disability, where the dependent has not claimed benefits under Section 80U.

What are the Documents to be Produced to Claim the Benefits of Section 80DD?

Necessary documents include the disability certification, proof of expenses, insurance policy documents if premiums are paid, and PAN details of the dependent. *Standard T&C Apply Note: Please note that tax benefit is subject to change in tax laws.

How to Claim Deduction Under Section 80DD

To claim the deduction under Section 80DD, include the expenditure or insurance premium paid details in your income tax return. Maintain all supporting documents like medical certificates and receipts, which might be required for verification by tax authorities. Here is a step-by-step guide to help you claim this deduction:

1. Obtain a Disability Certificate

Secure a valid disability certificate from a recognised medical authority. This certificate must state the extent of disability as per the specified guidelines under the Income Tax Act.

2. Gather Documentation

Compile all receipts and documents related to expenditure on medical treatment, training, and rehabilitation of the dependent. This includes receipts for paid insurance premiums if coverage is specifically for this purpose.

3. Fill Out the Relevant ITR Form

When filing your Income Tax Returns, include the amount spent on the care of the disabled dependent in the appropriate section of the ITR form. The form might ask for details about the type of disability and the amount expended.

4. Claim the Deduction

Enter the total amount spent during the financial year in the relevant column under Section 80DD. Ensure the amounts claimed match the supporting documents you have.

5. Keep Documents Ready

Retain all supporting documents for a minimum of six years after filing the return, as these may be required by the tax authorities for scrutiny or verification purposes.

Common Mistakes to Avoid

When claiming the Section 80DD deduction, there are several common errors that can lead to issues in your tax filing. Here is the list of common mistakes:

1. Lack of Proper Certification

Failure to secure or maintain proper certification of disability issued by a recognised medical authority.

2. Dual Claims

Filing simultaneous claims under both Section 80DD and Section 80U pertaining to the same dependent person within the same year, which is not allowed under the existing tax laws.

3. Missing documents

Not retaining proper receipts and other important documents to back up the expenditure claimed in Section 80DD.

4. Incorrect information

Careless mistakes in stating the nature or degree of disability, could make a mismatch during assessment.

5. Late submission

Submissions just in time at the last minute result in errors or omissions in the tax return.

Terms for Claiming Deduction under Section 80DD

When claiming a deduction under Section 80DD, it is important to stick to specific terms set forth by the Income Tax Act to ensure compliance and avoid any legal issues. Here are the key terms to keep in mind:

1. Dependent's Disability Status

The dependent, for whom the deduction is claimed, must be suffering from a disability as defined under the RPwD Act, 2016. The condition must be certified by a medical authority recognised by the government.

2. Non-Claim by Dependent

The dependent should not have claimed a deduction for themselves under Section 80U for the same assessment year. If the dependent has already taken advantage of Section 80U, you cannot claim an 80DD deduction for expenses related to that dependent.

3. Necessary Documentation

It is essential to maintain and submit all required documents, including medical certificates detailing the disability, receipts of expenses incurred on medical treatment, nursing, rehabilitation, and insurance premiums if any.

Conclusion

While section 80DD provides for a deduction in your income tax return, you can also purchase health insurance plans that are specifically designed to help cover the medical expenses. These may include critical illness plans or even health insurance for senior citizens . These health insurance plans also provide medical coverage for the already soaring treatment costs. In addition, the premiums paid for these plans are deductible under section 80D subject to prevalent limits. Thus, you can get dual benefits from purchasing a health cover. Before you finalise on any plan, make sure to understand what is health insurance and how it can benefit you by safeguarding your finances while the right treatment is made available for the insured individual.   *Standard T&C Apply Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms and conditions, please read sales brochure/policy wording carefully before concluding a sale.