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Tax deduction towards medical treatment & maintenance of a dependant with disability

Chartered Accountant

Tax deduction towards medical treatment & maintenance of a dependant with disability
Query 1]
As per new medical policy, Bank Employees have option to choose dependent parents (any of them) as their own parent or father/mother-in-law for only medical claim/ reimbursement purpose w.e.f. 01.11.2015 and onwards. All employees have updated online his detail of family dependents online in portal for same as per requirement by the Bank. I have also done it in July or Aug 2015. At present my own mother and father are not alive. My mother-in-law who is handicapped (can’t speak & hear and SPARSH Card (for handicapped Person) is issued in her own name by competent authority of MP Govt. Bhopal). She has no blood relative except her daughter (i.e. my wife) & is residing with us from more than 10 years. She has no income from any source of any type. She has Aadhar Card, Voter ID with my address at Bhopal. Moreover, her name is added in family card i.e. ration card issued by Nagar Palika Kolar Road Bhopal. I have submitted my detail of dependents family members including name of mother-in-law is added under PH dependent person. On dated 15.07.2015 my mother-in-law was admitted in city Hospital, Bhopal for major operation due to prolapse of uterus and discharged on 21.07.2015. I have made total expenses and paid Rs. 25,000/- as medical expenses. I have original receipt of the same issued by Hospital. But it was not submitted under medical claim, because there was no such provision in the medical policy of bank before 01.11.2015. The amount is unclaimed till date. While doing income tax projection, I mentioned Rs. 25,000/- in column of section 80DD(1). But it has been declined due to Bill receipt dated 20.07.2015 (i.e., before effective dt.01.11.2015). Now, I want to know,
1.      Whether can I mention this amount (i.e., Rs. 25,000/- as medical expenses made for treatment of physically handicapped dependant family member) under Section 80DD(1) while filling income tax return online before 31.07.2016 so that I can get refund?
2.      I have paid Rs. 4,383/- on dated 22.07.2015 as municipal tax for year 2015-16. Out of Rs. 4,383/-, Rs. 1,816/- is mentioned as property tax. (Receipt recd.). Whether I can claim this amount of Rs. 1,816/- under loss from House property? If yes under which section it should be mentioned?  []
1.      Like food, shelter & education, Medical expenses have also become an integral part & parcel of life. The best part is that some of the medical expenses do provide tax deduction thereby reducing ultimate tax liabilities (u/s 80DD, 80DDB, 80U).
2.      Section 80DD- Deduction towards dependant with a disability:
Section 80DD allows a deduction to an individual/HUF if any expenditure is incurred on the medical treatment (including nursing), training and rehabilitation of a dependant with a disability or paid or deposited any amount under a scheme framed in this behalf by an insurer for the maintenance of a dependant with a disability. The deduction available is Rs. 75,000/- for normal disability and Rs. 1,25,000/- for severe disability w.e.f. 01.04.2015. [Earlier, the limit was Rs. 50,000/- & 1,00,000/- respectively]. Deduction is not dependant on amount of actual expenses incurred. Even if actual expense on above mentioned disabled dependent relative is less, still full amount of deduction would be available.
What is considered as disability and Severe Disability?
The following disability can be considered for deduction u/s 80DD:·
 . Blindness
 . Low vision
· Leprosy-cured
· Hearing impairment
· Locomotor disability
· Mental retardation
· Mental illness
· Autism
· Cerebral palsy
· Multiple disabilities 
[A person with disability means a person suffering from not less than 40% of any of the above disabilities. Severe disability means 80% or more of one or more of the above disabilities.]
Meaning of Dependant: 
a] For individuals, spouse, son / daughter, parents, brothers & sisters
b] For HUFs, any member of the HUF can be a disabled dependant.
The disabled person should be wholly or mainly dependant for his / her support and maintenance, and should not have claimed deduction under section 80U.
3.      In your specific case, it may be noted that mother-in-laws is not considered as dependant and hence the deduction u/s 80DD would be admissible. Though your mother in laws is actually dependant on you & your employer also consider it for the purpose of reimbursement, still she would not be considered as dependant for the purpose of section 80DD and not deduction would be admissible u/s 80DD.
4.      It appears that you have paid the municipal tax in respect of your self-occupied house property. It may be noted that no deduction towards property tax/municipal tax is available against self occupied house property. Only deduction admissible against self occupied house property is interest on borrowed capital, subject to a maximum cap of Rs. 2 Lacs.
Query 2]
My wife invested Rs. 6 Lacs in SBI Life Smart Elite plan- Gold Cover Single premium on 14.02.2011 for five years. Assured value was Rs. 7.50 Lacs. The same is matured and the amount before tax is Rs. 8,81,565/- (as intimated by SBI Life ). As per I T Rule- 194DA, they have deducted Rs. 74,111/- (PAN card was given). It is not clear about the deduction. Is the deducted amount okay as per I. Tax rule? If not, how to get refund? She never files return as her income (from Bank Interest) is under the taxable limit. Kindly Suggest. [Sudarsan]
1. Entire maturity benefits (including bonus) from life insurance policies would be tax free in the hands of policyholders if, at any point of time during the policy term, annual premiums payable in any year do not exceed 20% of the basic sum assured in respect of policies issued on or after 01.04.2003 but before 31.03.2012. For policy issued on or after 01.04.2012, annual premium should not exceed 10% (15% in case of handicapped person or person suffering from specified diseases) of minimum sum assured. Effectively, there is no escape from tax on insurance proceeds if the premium paid exceeds 20% or 10% or 15% of the sum assured. Similarly, the amount received under a keyman insurance policy is also not eligible for exemption u/s 10(10D).
2. Further, premium paid on life insurance policy is eligible for deduction u/s 80C subject to the condition that maximum amount of premium should be within 20% or 10% or 15% of the sum assured, as mentioned above.
3. To track the taxability of such transactions, as new section 194DA has been inserted under the Act to provide for deduction of tax at the rate of 2% on sum paid under a life insurance policy which are not exempt under section 10(10D). But no deduction under this provision shall be made if the aggregate sum paid in a financial year to an assessee is less than Rs 1,oo,ooo. In short, Section 194D envisages only TDS on the policies payouts which are not exempt under Section 10(10D).  The rate of TDS is 2% for valid Pan registered payee & 20% for invalid or no PAN holder.
In your specific case, since the conditions of section 10(10D) is violated with regards to premium vis a vis sum assured, the proceeds would not be tax exempt & is correctly subject to TDS U/s 194DA. Further, TDS should have been Rs. 17,631/- (i.e., 2% of maturity proceeds of Rs. 8,81,565/-)  as the PAN is provided by you to the payer. The figure of Rs. 74,111/- appears to be is improper. She can file her return of income and can get the refund of TDS if her tax liability is less or nil.
[An important issue now emerges is with regards to computation of taxable income if taxpayer fails to comply with the stipulations of section 10(10D). Which amount would be taxable in such case? Argument by the revenue would be, since entire sum (i.e., Rs. 8.81 Lacs in your case) is exempt u/s 10(10D), violation would make entire receipt taxable. Argument by the taxpayer would be simple, that tax is leviable only on income & amount received over & above the amount invested (i.e., Rs. 2.81 Lacs in your case) is the only amount that could be termed as income. Further, argument of taxpayer of treating the investment as capital assets and offering the income after indexation benefit as “Capital Gain” income could not be ruled out in such cases. There is no clarity on the issue. Tax implication is controversial & subject to all the possible argument & interpretation as mentioned above. A suitable clarification by the CBDT would be in the interest of the tax payer as well as revenue].
[The author is a practicing Chartered Accountant from Nagpur. Readers may send their direct tax related queries at
10, Laxmi Vyankatesh Apartment
C.A. Road, Telephone Exch. Square
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