Medical Bills Tax Exemption

In recent years, the incidence of health problems and their treatment costs have increased by leaps and bounds all over the world. The main culprits for this include changing food habits and poor lifestyle choices. According to an analysis published by the world’s leading medical journal ‘Lancet’, Indians pay around 78% of their medical expenses out of their own pocket. The paper points out that the majority of this treatment expenditure (approximately 74%) incurred in India is for outpatient treatment whereas only 26% expenditure relates to in-patient procedures that require hospitalization of 24 hours or more.

It also states that 72% of the total out-of pocket expenses relate to purchase of medications both before and after medical procedures. In order to provide some relief to the society at large and individuals in particular from these escalating medical costs, some provisions have been made in the Income Tax Act, 1961. These provisions help in decreasing the tax burden by providing various deductions and exemptions for payment of medical expenditures, insurance premiums, etc.

These deductions and exemptions have been detailed as below

The only requirement for claiming deduction under section 80DDA is to present the certificate of disease. This can be obtained from the specialist medical officer, whether practicing at a private or a public hospital, from whom the treatment is sought. The specialist should possess a degree in which he/she has specialized. The degree must be authenticated by the Medical Council of India.

Deduction for medical expenses can’t be claimed if reimbursement for the same is done by the insurance company. But if the reimbursement done by the insurance company is less than the actual expenditure, tax deduction can be claimed for the balance amount (maximum up to the deduction limit).

Diseases covered under section 80DDB

Deduction can be claimed for treatment of a wide range of diseases that includes: neurological disorders like dementia, hemiballismus, ataxia, Parkinson’s disease, motor neuron disease, chorea, dystonia, musculorum deformans and aphasia. Treatment of chronic conditions like malignant cancers, renal failure and hematological disorders such as hemophilia, Thalassemia and full blown AIDS (Acquired Immunodeficiency Syndrome) can also be claimed for deduction under Section 80DDB.

Tax Deduction u/s 80D for Payment of Health Insurance Premium

A deduction of Rs 30,000 can be made from your total annual income to arrive at the taxable income in lieu of the health insurance premium paid during a year. For senior citizens, this limit has been raised to Rs 50,000. Amount paid as premium for Mediclaim policies purchased for self, spouse, parents and dependent children alone can be claimed for income tax deduction under section 80DD. For citizen more than 80years of age, the maximum deduction available under this section is INR 1,00,000.

Tax Deduction u/s 80DD for Expenses Incurred on Treatment of a Disabled Dependent

According to Section 80DD, expenditure incurred for treatment of a disabled dependent or for payment made for an approved insurance scheme meant for maintenance of a disabled dependent shall be eligible for tax-deduction.

If the dependent is suffering from severe disability (i.e. disability of 80% or more) the limit for tax deduction has been fixed at Rs 125,000 per financial year. This limit shall be restricted to Rs. 75,000 in other cases i.e. lower degree of disability. A person with disability shall be the one who has suffered ‘not less than 40% disability’ as per the certification of a medical authority.

The disabilities eligible under this section includes hearing impairment, mental illness, autism, cerebral palsy, multiple disabilities, blindness (or low vision), mental retardation, leprosy, etc. In case of individual tax payees, dependents who are covered include spouse, children, siblings and/or parents. In case of HUF, any member of HUF can be treated as a dependent. A certificate of treatment from doctors of government hospitals is required to be submitted in a prescribed format to claim deduction as a disabled dependant under this section.

Payment to an insurance scheme is eligible for tax deduction only if the disabled dependent gets the amount (whether in the form of annuity or lump sum) after the tax payer’s death. A trust, dependent, or any other person can be nominated for receiving the payment on behalf of dependent in such cases.

Deduction u/s 80U for Persons with Disabilities

A disabled person suffering with 40% or more disability can claim deductions capped at INR 75,000 annually under this section. In case of severe disability, the deduction limit shall be increased to INR 125,000. A certificate from government approved medical authority is required to be furnished for claiming deduction under this section. Reassessment of disability will be done on expiry of the certificate. The disabilities eligible for deduction are same as under section 80DD of the Income Tax Act of 1961.

On Feb 1, Arun Jaitley proposed a standard deduction of INR 40,000 in lieu of medical reimbursement and transport allowances for the taxpayers. Under FY 2018-19, salaried individuals and pensioners need not have to furnish any bills or documents to claim the standard deduction of INR 40,000. As proposed, there is no such rules to claim medical bill reimbursement, taxpayers can straightaway claim it.

From FY 2018-19 salaried as well as pensioner taxpayers do not require to submit the medical bills to claim medical deductions. In some cases, companies do demand for medical bills reimbursement form which is thus issued by the company where employee is working. Medical bill reimbursement format varies from company to company.

Amendments to Medical Allowance in Union Budget

Medical allowance for Pensioners

As per the amendment made through Finance Act 2018 in Section 16 of the Income Tax Act, 1961 pensioners can claim deductions up to INR 40,000 in a form of standard deductions. CBDT clearly stated the fact that pension received by the taxpayer from the former employer shall be allowed deduction of INR 40,000 for computing taxable income. Standard deduction has been made available from FY 2018-19 and will be applicable to the assessment year 2019-2020.