Deduction in respect of medical treatment, etc

128(1)

An assessee who is resident in India, shall be allowed a deduction of the amount actually paid during the tax year or a sum of forty thousand rupees, whichever is less, from income chargeable to tax of that tax year, for the medical treatment of such disease or ailment as prescribed—

• (a) for himself or a dependant, in case the assessee is an individual; or
• (b) for any member of a Hindu undivided family, in case the assessee is a Hindu undivided family.

128(2)

A deduction shall be allowed under this section only if the assessee obtains the prescription for the medical treatment from a neurologist, oncologist, urologist, haematologist, immunologist, or any other specialist, as prescribed.

128(3)

The deduction under this section shall be reduced by any amount received under an insurance from an insurer, or reimbursed by an employer, for the medical treatment of the person as referred to in sub-section (1)(a) or (b).

128(4)

If the amount actually paid is in respect of the assessee or his dependant or any member of a Hindu undivided family of the assessee and who is senior citizen, the amount of deduction as referred to in sub-section (1) shall be substituted with one lakh rupees for forty thousand rupees.

128(5)

In this section,––

• (a) “dependant” shall have the meaning as provided in section 127;
• (b) “insurer” shall have the meaning assigned to it in section 2(9) of the Insurance Act, 1938.

Explanation

Section Summary:

Section 128 of the new income tax law provides a deduction for medical expenses incurred by a resident individual or Hindu Undivided Family (HUF) for the treatment of specified diseases or ailments. The deduction is capped at ₹40,000 or the actual amount paid, whichever is lower. For senior citizens, the cap is increased to ₹1,00,000. The deduction is subject to certain conditions, such as obtaining a prescription from a specialist and reducing the claim by any insurance or employer reimbursement received.

Key Changes:

1. Increased Deduction for Senior Citizens: The deduction limit for senior citizens has been raised from ₹40,000 to ₹1,00,000.
2. Specialist Prescription Requirement: The deduction is now contingent on obtaining a prescription from specified specialists (e.g., neurologist, oncologist, etc.).
3. Reduction for Reimbursements: The deduction must be reduced by any amount reimbursed by an employer or received from an insurance provider.

Practical Implications:

• For Individuals and HUFs: Taxpayers can claim deductions for medical expenses incurred for themselves, dependents, or HUF members, provided they meet the prescribed conditions.
• For Senior Citizens: The higher deduction limit benefits senior citizens, reducing their taxable income more significantly.
• For Compliance: Taxpayers must ensure they have proper documentation, including prescriptions from specified specialists and proof of payment, to claim the deduction.

Critical Concepts:

1. Dependant: As defined in Section 127, a dependant includes a spouse, children, parents, siblings, or any other person dependent on the taxpayer for support.
2. Insurer: As per the Insurance Act, 1938, an insurer is an entity licensed to provide insurance services.
3. Reimbursement Reduction: If the taxpayer receives reimbursement from an employer or insurance, the deduction amount must be reduced by the reimbursed amount.

Compliance Steps:

1. Obtain Prescription: Ensure the medical treatment is prescribed by a specialist listed in the section (e.g., neurologist, oncologist, etc.).
2. Maintain Records: Keep receipts and proof of payment for the medical expenses.
3. Adjust for Reimbursements: Deduct any amounts reimbursed by an employer or received from an insurance provider before claiming the deduction.
4. File Correctly: Report the deduction in the appropriate section of the income tax return.

Examples:

1. Individual Taxpayer: Mr. A spends ₹50,000 on medical treatment for his dependent mother, who is a senior citizen. He receives ₹20,000 as reimbursement from his employer. The deductible amount is ₹1,00,000 (senior citizen limit) minus ₹20,000 (reimbursement), resulting in a deduction of ₹80,000.
2. HUF: A HUF spends ₹30,000 on medical treatment for a member. They do not receive any reimbursement. The deductible amount is ₹30,000 (actual expense), as it is less than the ₹40,000 cap.

This section aims to provide relief for medical expenses while ensuring proper documentation and compliance.