You can claim a deduction of Rs75,000 for incurring expenses of disabled dependent
My sister is visually impaired. Since my parents’ demise 3 years ago, she has been living with us. Recently, a friend told me that I may be eligible for income tax deductions on this count. What documents are needed for this and what is the extent of the tax rebate? While my sister plans to stay with us for the long-term, do I have to furnish documents to prove that she stays with me every year?
Under the domestic tax laws, an individual can claim deduction in respect of expenses incurred for the medical treatment, training and rehabilitation of a dependant with disability or amount deposited with Life Insurance Corporation of India (LIC) or any other approved insurer for the maintenance of dependant with disability. Further, disability includes blindness. Dependants include spouse, children, parents, brothers or sisters of the individual (section 80DD of Income-tax Act, 1961). Accordingly, deduction of Rs75,000 per financial year (FY) can be claimed irrespective of the actual amount spent or deposited with approved insurer. Also, a higher deduction of Rs1.25 lakh per FY would be allowed if your sister falls in the category of severe disability ( i.e., having a disability of 80% or more).
You would be required to furnish a copy of a certificate issued by a medical authority in the prescribed form and manner (i.e. ,Form 10 IA) along with your personal tax return. The aforesaid tax benefit cannot be claimed if your sister is availing deduction under section 80U. The deduction under section 80U can be availed by an individual with disability subject to the specified conditions.
My brother wants to give his share of the property to me that we bought jointly. I want to pay for his share. If I do so, what will be the tax implication on either or both of us? The house was bought in 2010.
We have assumed that the house property was jointly owned and funded by both of you. If your brother sells his share in the house property to you for consideration, the gains, if any, arising from the sale of his share will be taxable as ‘capital gains’ in his hands. Your brother’s share in the joint house property will be determined on the ratio of funding towards the cost of the property.
Since the house property has been bought in 2010, the gains shall be classified as long-term capital gains (LTCG). The cost of his share of acquisition and improvement, if any, incurred by him, subsequent to purchase should be indexed cost as prescribed.
The LTCG shall be computed as the difference between net sale proceeds and the aforesaid indexed cost of acquisition and improvement.
Your brother can avail an exemption from LTCG tax by reinvesting the LTCG in a new residential property located in India, within the prescribed time limits (section 54). Alternatively, he can invest the LTCG in the bonds notified within 6 months from the sale date, subject to a threshold of Rs50 lakh (section 54EC).
Just for your information, if the sale proceeds receivable from sale of his share in the house is less than the value adopted for payment of stamp duty, then for computing the capital gains, the value as assessed for the purpose of payment of stamp duty shall be considered as the sale value.
On a related note, if your total income exceeds Rs50 lakh during the relevant FY, then you will have to report the cost of the entire house property (including your brother’s acquired share in the house) in your personal tax return (schedule AL).
Further, stamp and registration fees will have to be paid in relation to the transfer of his share and the transaction has to be evidenced by documents. If the sale consideration exceeds Rs50 lakh, appropriate tax will have to be deducted and deposited by you from the payments made to your brother assuming both of you are tax residents of India (section 194-IA).
Parizad Sirwalla is partner (tax), KPMG.
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