I have a sibling who is mentally challenged and totally dependent on me. Is there a provision to claim the expenses to reduce my tax liability?
If you have a dependent with a disability or even severe disability, then you can claim tax deductions under Section 80DD of the Income Tax Act of 1961. However, to be eligible to claim this deduction one must be an individual or a part of HUF (Hindu Undivided Family), who is a resident of India. This deduction is not available for NRIs (Non-resident Indians), as a lot of countries help their residents in some way or other when it comes to medical treatments.
Tax Deductions Under Section 80DD
Starting the financial year 2015-2016, the tax deductions will be as mentioned below:
• If the dependent individual has a disability (40 percent or over disability), then the limit of the tax deduction is Rs. 75,000 under Section 80DD
• If the dependent individual has a disability (80 percent and over disability), then the limit will go up to Rs. 1,25,000
• The tax deduction is not dependent on the amount of expenses incurred. If in case the amount spent on treatment is less then 75,000, the person will be eligible for a full deduction
Expenses Deducted from Income Tax Calculation
• Any expense that is incurred for medical help that includes, nursing, rehabilitation and training of the dependent who is disabled
• Any amount paid towards Unit Trust of India, LIC (life insurance corporation) or any other insurers for the purpose of purchasing specified insurance policies to maintain and help the dependent with disabilities
Conditions for Tax Deductions
• The insurance plan purchased must be on the tax assessor’s name. Moreover, it should always be a life insurance policy not a health insurance policy. The policy can pay either annuity or lump sum amount as a death benefit for the dependent in case something happens to the caretaker
• You must possess a hard copy of the medical certificates confirming the disability. The certificate must be from a government medical board (state or central) in order to claim for a deduction
• In case something happens to the disabled dependent, or he/she dies before the caretaker, then the policy amount returned will be treated as an income and will be taxed as such
Disabilities considered under Section 80DD
Disabilities that are liable under Section 80DD are defined under the clause (i) of Section 2 by the "person with Disabilities Act, 1995". Some of them include:
• Mental or cognitive disabilities
• Locomotor Disability
• Cerebral Palsy
• Multiple Disabilities
It is essential that the dependent should not suffer less than 40 percent of any of the disabilities mentioned above, which in case of severe disabilities goes up to 80 percent. To claim the deductions, one must provide a medical certificate from any government organisation. The document should certify the disability of the dependent person, and it should be renewed periodically. Moreover, actual receipts of the payment made to an insurance company to purchase the policy for the dependent person should also be submitted.
So, if you have a sibling who is completely dependent on you and has 80% or over disability, then you are eligible for a tax deduction of up to Rs. 1,25,000 under Section 80DD.