Deduction in respect of maintenance including medical treatment of a dependant who is a person with disability.

127(1)

An assessee being an individual or a Hindu undivided family, who is a resident in India, shall be allowed a deduction up to seventy-five thousand rupees from his gross total income of a tax year, subject to the provisions of this section, if during that year he has––

• (a) incurred expenditure for the medical treatment (including nursing), training, or rehabilitation of a dependant, being a person with disability; or
• (b) paid or deposited any amount, under a scheme framed by the Life Insurance Corporation or any other insurer or the Administrator, or the specified company, for the maintenance of a dependant, being a person with disability, subject to the conditions specified in sub-section (2) and approved by the Board in this behalf.

127(2)

The deduction under sub-section (1)(b) shall be allowed only if the following conditions are fulfilled:––

• (a) the scheme referred to in sub-section (1)(b) provides for payment of an annuity or lump sum amount for the benefit of a dependant, being a person with disability–– (i) on the death of the individual or the member of the Hindu undivided family, in whose name the scheme was subscribed; or (ii) on attaining the age of sixty years or more by such individual or the member of the Hindu undivided family, and the payment or deposit to such scheme has been discontinued;
• (b) the assessee nominates the dependant, being a person with disability or another person or a trust to receive the payments on behalf and for the benefit of such dependant.

127(3)

If the dependant as referred to in sub-section (1) is a person with severe disability, the amount of deduction as referred to in sub-section (1) shall be substituted with one lakh and twenty-five thousand rupees for seventy-five thousand rupees.

127(4)

In the event of death of the dependant, being a person with disability before the individual or member of the Hindu undivided family mentioned in sub-section (2), the amount paid or deposited under sub-section (1)(b) shall be deemed to be the income of the assessee of the tax year in which it is received and shall accordingly be chargeable to tax.

127(5)

The provisions of sub-section (4) shall not apply to the amount received by the dependant, being a person with disability, before his death, as an annuity or lump sum, by application of the condition referred to in sub-section (2)(a)(ii).

127(6)

The assessee claiming deduction under this section, shall furnish a copy of the medical certificate issued by the medical authority in such form and manner as prescribed, along with the return of income under section 263 for the tax year in which the deduction is claimed.

127(7)

If the certificate referred to in sub-section (6), specifies that the condition of disability requires reassessment of its extent after a period stipulated in it, the deduction under this section shall not be allowed for any tax year succeeding the tax year in which the said certificate expires, unless a new certificate is obtained from the medical authority in such form and manner, as prescribed, and a copy thereof is submitted along with the return of income under section 263.

127(8)

The dependant mentioned in this section shall not include a person who has claimed deduction under section 154 in computing his total income for the tax year.

127(9)

sssIn this sections,—

• (a) “Administrator” means the Administrator as referred to in section 2(a) of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002;
• (b) “dependant” means— (i) in the case of an individual, the spouse, children, parents, brothers and sisters of the individual or any of them; (ii) in the case of a Hindu undivided family, a member of the Hindu undivided family, dependant wholly or mainly on such individual or Hindu undivided family for his support and maintenance;
• (c) “disability” shall have the same meaning as assigned to it in section 2(i) of the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 and includes “autism”, “cerebral palsy” and “multiple disability” respectively referred to in section 2(a), (c) and (h) of the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999;
• (d) “Life Insurance Corporation” means the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956;
• (e) “medical authority” means the medical authority as referred to in section 2(p) of the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 or such other medical authority as may, by notification, be specified by the Central Government for certifying “autism”, “cerebral palsy”, “multiple disabilities”, “person with disability” and “severe disability” respectively referred to in section 2(a), (c), (h), (j) and (o) of the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999;
• (f) “person with disability” means a person as referred to in section 2(t) of the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 or section 2(j) of the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999;
• (g) “person with severe disability” means— (i) a person with 80% or more of one or more disabilities, as referred to in section 56(4) of the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995; or (ii) a person with severe disability referred to in section 2(o) of the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999;
• (h) “specified company” shall have the same meaning as assigned to it in section 2(h) of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002.

Explanation

Section Summary:

This section provides a tax deduction for individuals or Hindu Undivided Families (HUFs) who are residents of India and incur expenses for the maintenance, medical treatment, or rehabilitation of a dependant with a disability. The deduction is also available for contributions made to specific insurance schemes for the benefit of such dependants. The deduction amount varies based on whether the dependant has a disability or a severe disability.

Key Changes:

1. Increased Deduction Limits: The deduction limit has been increased to ₹75,000 for dependants with disabilities and ₹1,25,000 for dependants with severe disabilities.
2. Expanded Scope of Deduction: The deduction now covers not only medical treatment but also training, rehabilitation, and contributions to approved insurance schemes for the maintenance of dependants with disabilities.
3. Conditions for Insurance Schemes: Specific conditions are introduced for deductions related to insurance schemes, including the requirement to nominate the dependant or a trust for their benefit.
4. Medical Certification Requirement: Taxpayers must furnish a medical certificate from a recognized authority to claim the deduction, and the certificate must be renewed if the disability condition requires reassessment.

Practical Implications:

• For Individuals/HUFs: Taxpayers can reduce their taxable income by up to ₹75,000 or ₹1,25,000, depending on the severity of the dependant's disability. This provides financial relief for those supporting dependants with disabilities.
• For Insurance Schemes: Contributions to approved schemes (e.g., LIC or other insurers) for the benefit of dependants with disabilities are now eligible for deductions, provided the conditions under sub-section (2) are met.
• Compliance Burden: Taxpayers must ensure proper documentation, including medical certificates and proof of contributions to insurance schemes, to claim the deduction.

Critical Concepts:

• Dependant: Includes spouse, children, parents, siblings, or any member of an HUF who is wholly or mainly dependent on the taxpayer for support.
• Disability and Severe Disability: Defined under the Persons with Disabilities Act, 1995, and the National Trust Act, 1999. Severe disability refers to a person with 80% or more disability.
• Medical Authority: A recognized authority certifying the disability, as specified by the Central Government.
• Insurance Scheme Conditions: The scheme must provide for an annuity or lump sum payment to the dependant upon the taxpayer's death or after they turn 60, and the taxpayer must nominate the dependant or a trust for their benefit.

Compliance Steps:

1. Obtain Medical Certificate: Secure a medical certificate from a recognized authority certifying the dependant's disability or severe disability.
2. Maintain Records: Keep records of expenses incurred for medical treatment, training, or rehabilitation, or proof of contributions to approved insurance schemes.
3. Nomination: If claiming a deduction for insurance schemes, ensure the dependant or a trust is nominated to receive the benefits.
4. File with Tax Return: Submit a copy of the medical certificate and other required documents along with the income tax return under Section 263.
5. Renew Certificate if Required: If the medical certificate specifies a reassessment period, obtain a new certificate before it expires and submit it with the subsequent tax return.

Examples:

1. Medical Treatment Deduction: Mr. A spends ₹50,000 on medical treatment for his son, who has a disability. He can claim a deduction of ₹50,000 from his gross total income, up to the maximum limit of ₹75,000.
2. Insurance Scheme Contribution: Ms. B contributes ₹1,00,000 to an LIC scheme for her sister, who has a severe disability. She nominates her sister as the beneficiary. Ms. B can claim a deduction of ₹1,00,000, subject to the maximum limit of ₹1,25,000.
3. Severe Disability Case: Mr. C has a dependant with a severe disability and incurs ₹1,30,000 in medical expenses. He can claim the full ₹1,25,000 deduction, as the limit for severe disability is higher.

This section aims to provide financial support to taxpayers caring for dependants with disabilities while ensuring proper documentation and compliance with the law.