Are you aware of the income tax benefits available to an individual in relation to the healthcare costs under various scenarios as per the provisions of the Income-Tax Act? Here's a help.
Healthcare costs constitute a significant part of an individual’s domiciliary budgets entailing medical treatments of self and dependants, preventive check-ups, payment of health insurance premium, etc. Amidst the rising inflation, healthcare costs in India are also in upswing. Nonetheless, the Government of India provides certain ‘healthcare cost benefits’ to every individual taxpayer by way of income-tax deductions from an individual’s taxable income for a particular tax year.
This article primarily seeks to encapsulate the associated tax benefits available to an individual in relation to the healthcare costs under various scenarios as per the provisions of the Income-Tax Act, 1961 (ITA) along with amendments introduced by the Finance Act, 2018:
(A) Medical expenditure incurred by the employer for the employee:
As per the provisions of the ITA, the following facilities provided by the employer are treated as “tax-free” perquisites in the hands of employee:
# The value of any medical treatment provided to an employee or any member of the family in any hospital maintained by the employer;
# Medical reimbursement provided by an employer to an employee for medical treatment of self or family members in any hospital maintained by the Government or local authority or in a hospital approved by the Government for treatment of its employees;
# Medical reimbursement provided by an employer to an employee for medical treatment of self or any member of the family against certain diseases/ ailments as prescribed under the Income-tax Rules, 1962 (such as cancer, tuberculosis, etc.);
# Any portion of the insurance premium paid by the employer for insurance and health of the employee under a scheme approved by the Central Government (CG) or Insurance Regulatory and Development Authority (IRDA); and
# Any reimbursement by the employer of any insurance premium paid by the employee, for a health insurance for self or any member of the family under a scheme approved by the CG or IRDA.
(B) Health insurance premium and medical expenditure (Section 80D) paid by an individual:
Health insurance premiums paid by an individual covering self, spouse, parents and dependent children are allowed as a deduction from the total taxable income of such individual under Section 80D of the ITA. However, the said deduction is restricted to the following, during the tax year 2018/19:
Taxpayer and parents are not senior citizen
Only Parents are senior citizens
Taxpayer and Parents (all are senior citizens)
Health insurance premium paid to any scheme approved by CG or IRDA by the taxpayer (INR 5,000* for preventive health check-up in included)
Medical expenditure/ costs incurred for senior citizens (no health insurance is in effect for such person)
*Only the preventive health care costs of up to Rs 5,000 can be paid in cash mode; else, all other expenditure can be made only by way of non-cash modes.
(C) Expenditure incurred on medical treatment of disabled dependent (Section 80DD read with Rule 11A):
Where an individual is a tax resident of India for tax year 2018/19, incurs expenditure on medical treatment (including nursing), training and rehabilitation of a disabled dependant (or) paid any amount under an approved insurance scheme for the maintenance of a disabled dependant (subject to conditions prescribed), then such individual is allowed to claim a fixed deduction of Rs 75,000 from his total taxable income under Section 80DD of the ITA. However, in case the dependent is a person with severe disability (i.e. such person has 80 per cent or more of one or more disabilities as prescribed), then the amount of fixed deduction would be Rs 125,000. In case of an individual, a dependant could be spouse, children, parents, brothers or sisters.
The individual claiming deduction under this Section shall obtain a copy of the certificate issued by the medical authority in the prescribed form (Form 10-IA) and manner, in respect of the tax year for which the deduction is claimed.
The term ‘disability’ shall have the meaning 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’ 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) Expenditure incurred on treatment of certain specified illness (Section 80DDB read with Rule 11DD):
Medical expenditure incurred by an individual, being a tax resident of India, on medical treatment of certain specified diseases or ailments (as prescribed under Rule 11DD of the Income-tax Rules, 1962) of self or dependents are eligible to claim deduction up to Rs 40,000 for tax year 2018/19. However, in case the dependent is of the age of 60 years or more (senior citizen) then, the amount of deduction is available up to Rs 100,000. Dependants include spouse, children, parents or brothers or sisters, who are wholly or mainly dependant on such individual for support and maintenance.
It is pertinent to note that deduction under this Section is available after reducing the amount received from the insurer or any amount reimbursed by the employer. Further, in order to claim this deduction, the individual shall obtain a prescription for such medical treatment from a neurologist, an oncologist, a urologist, a haematologist, an immunologist or such other specialist, as may be prescribed.
(E) Deduction for persons with disability (Section 80U read with Rule 11A):
Where an individual being a tax resident of India is certified by the medical authority to be a person with disability (as referred above under Section 80DD of the ITA), then such individual would be allowed a fixed deduction of Rs 75,000 from his total taxable income. However, in case the individual is a person with severe disability, then the amount of aforesaid deduction would increase to Rs 125,000. Any individual claiming a deduction under this Section shall obtain a copy of the certificate issued by the medical authority in the form and manner, prescribed by the Income-tax authorities, in respect of the tax year for which the deduction is claimed.
It is pertinent to note that Section 80DD of the ITA is available to an individual for maintenance of disabled dependant. However, deduction under Section 80U of the ITA is available only to an individual who is disabled.
It is pertinent to note that the primary benefits pertaining to healthcare costs are now restricted to specified illnesses/ disabilities and the Finance Act 2018 has done away with the income-tax benefit available to a taxpayer pertaining to medical reimbursements (up to Rs 15,000 pa). In the ensuing tax year 2018/19, one may avail optimum benefits from the aforementioned deductions to attain maximum tax efficiency. Further, the Government of India has proposed introduction of heath care schemes, such as the ‘National Health Protection Scheme’ through the Budget 2018 to provide coverage to poor and vulnerable families for secondary and tertiary care hospitalization (this is claimed to be the world’s largest government funded health care programme).
(The author is National Leader Tax – Grant Thornton India LLP. With inputs from CA Sudeep Das)