Supportive Tax Provisions for Individuals and HUFs Caring for Disabled Dependents persons : Clause 127 of the Income Tax Bill, 2025 Vs. Section 80DD of the Income Tax Act, 1961

Clause 127 Deduction in respect of maintenance including medical treatment of a dependant who is a person with disability.

Income Tax Bill, 2025

Introduction

Clause 127 of the Income Tax Bill, 2025, and Section 80DD of the Income-tax Act 1961, both address deductions available to taxpayers who incur expenses related to the maintenance and medical treatment of dependents with disabilities. These provisions reflect a legislative intent to provide financial relief and support to individuals and Hindu Undivided Families (HUFs) aiding dependents with disabilities. The provisions are particularly significant given the financial burdens often associated with the care and rehabilitation of individuals with disabilities. This commentary will provide a detailed analysis of Clause 127 and Section 80DD, exploring their objectives, implications, and differences.

Objective and Purpose

Both Clause 127 and Section 80DD aim to alleviate the financial strain on taxpayers who support dependents with disabilities. The provisions recognize the additional costs associated with medical treatment, nursing, training, and rehabilitation. By offering deductions, the legislation seeks to incentivize and support taxpayers in providing for their dependents' needs. The provisions also reflect broader policy considerations, including the promotion of social welfare and the protection of vulnerable groups within society.

Detailed Analysis

Key Provisions of Clause 127 of the Income Tax Bill, 2025

1. Eligibility and Deduction Limits: Clause 127 allows an individual or HUF resident in India to claim a deduction of up to seventy-five thousand rupees from their gross total income. This deduction is available if the taxpayer incurs expenses for the medical treatment, training, or rehabilitation of a dependent with a disability or makes contributions to an approved insurance scheme for the dependent's maintenance.

2. Conditions for Scheme-Based Deductions: The clause specifies conditions under which deductions related to insurance schemes are allowed. The scheme must provide for annuity or lump-sum payments to the dependent upon the death of the taxpayer or when the taxpayer reaches sixty years of age.

3. Severe Disability: For dependents with severe disabilities, the deduction limit increases to one lakh and twenty-five thousand rupees. This recognizes the greater financial burden associated with severe disabilities.

4. Taxability on Predeceasing: If the dependent predeceases the taxpayer, the amount deposited under the insurance scheme is treated as the taxpayer's income for that year, subject to tax.

5. Documentation and Compliance: Taxpayers must furnish a medical certificate to claim the deduction. The certificate must be renewed if it stipulates a reassessment period for the disability.

6. Exclusions: A dependent claiming a deduction u/s 154 is excluded from the definition of "dependant" under this section.

Key Provisions of Section 80DD of the Income-tax Act 1961

1. Eligibility and Deduction Limits: Similar to Clause 127, Section 80DD provides a deduction of seventy-five thousand rupees for expenses related to the medical treatment and maintenance of a dependent with a disability. For severe disabilities, the deduction increases to one lakh and twenty-five thousand rupees.

2. Conditions for Scheme-Based Deductions: The section outlines conditions similar to Clause 127 for deductions related to insurance schemes, including the provision of annuity or lump-sum payments.

3. Taxability on Predeceasing: If the dependent predeceases the taxpayer, the deposited amount is deemed the taxpayer's income for that year.

4. Documentation and Compliance: Taxpayers must provide a medical certificate to claim deductions, similar to Clause 127.

5. Exclusions: A dependent who claims a deduction u/s 80U is excluded from the definition of "dependant" under this section.

Comparative Analysis

Similarities

- Both provisions offer deductions for expenses related to the maintenance and medical treatment of dependents with disabilities.

- The deduction limits and conditions for scheme-based deductions are similar.

- Both require taxpayers to provide a medical certificate to claim deductions.

- Provisions for dependents with severe disabilities are identical, offering higher deduction limits.

Differences

- Legislative Context: Clause 127 is part of the proposed Income Tax Bill, 2025, reflecting potential future changes in tax legislation. Section 80DD is an established provision under the Income Tax Act, 1961.

- Terminology and Definitions: While both provisions define terms like "disability" and "dependant," there may be subtle differences in the legislative language used, reflecting changes in policy or legal interpretation over time.

- Exclusions: Clause 127 excludes dependents claiming deductions u/s 154, while Section 80DD excludes those claiming u/s 80U. This reflects differences in the scope and application of these sections.

Practical Implications

Both provisions have significant implications for taxpayers supporting dependents with disabilities. They provide financial relief and recognize the additional burdens faced by these taxpayers. Compliance with documentation requirements is crucial to claim deductions, and taxpayers must be aware of the conditions and exclusions applicable under each provision. The provisions also impact insurers and scheme administrators, who must ensure their products comply with legislative requirements to qualify for deductions. Additionally, the provisions influence policy discussions around disability support and tax incentives, highlighting the role of tax policy in promoting social welfare.

Conclusion

Clause 127 of the Income Tax Bill, 2025, and Section 80DD of the Income Tax Act, 1961, reflect a consistent legislative intent to support taxpayers caring for dependents with disabilities. While the provisions are similar in many respects, differences in exclusions and legislative context highlight the evolving nature of tax policy. Future developments may include further refinements to these provisions, reflecting changes in social policy and economic conditions. As tax legislation continues to evolve, these provisions will remain a critical component of the broader framework supporting individuals with disabilities in India.

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Full Text:

Clause 127 Deduction in respect of maintenance including medical treatment of a dependant who is a person with disability.

 

Dated: 15-4-2025