The amount received by way of annuity or lump sum will not be deemed to be the income of the surviving taxpayer
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Finance minister Nirmala Sitharaman on Tuesday announced tax relief for people with disabilities and taxpayers buying life insurance schemes for their benefit. The finance minister allowed the payment of annuity and a lump sum amount to the differently-abled during the lifetime of their parents, once the parents attain the age of sixty years.
Currently, the lump sum or annuity payment is available to the differently-abled person on the death of parents who are normally the taxpayers.
Section 80DD of the Income Tax Act provides for a deduction for taxpayers (resident Indians) to maintain disabled dependents. Saraswathi Kasturirangan, partner, Deloitte India, said relief for taxpayers with disabled dependents is available as a deduction of such amounts invested in annuity providing schemes and is limited to ₹75,000 or ₹125,000 per annum depending on the severity of disability.
However, currently, such deduction is available only if the annuity or the lump sum is receivable after the taxpayer’s death. This has been relaxed to extend the deduction even if such sum is received during the lifetime of the taxpayer on attaining the age of 60 years, provided the payment to the scheme has been discontinued.
This simply means that the amount received by way of annuity or lump sum will not be deemed to be the income of the surviving taxpayer and will not be chargeable to tax.
This deduction is already prevailing for the last 20 years under section 80DD of the Income Tax Act. Under this section, there are two options. Anil Chopra, group director, Financial Wellbeing, Bajaj Capital, explained that under the first option, a taxpayer could claim the amount actually spent on the medical treatment of the differently abled dependent. Here, there is no change in the current provisions.
“Under the second option, the taxpayer can pay a certain amount of premium every year to Life Insurance Corporation of India or any other insurance company for buying a life insurance scheme in which the dependent different abled person will either receive a lump sum amount or a monthly annuity on the event of death of the taxpayer who has purchased that life insurance policy. Now, as per the amendment, the lump sum payment or the annuity can be given to the dependent disabled person even though the taxpayer, who purchased the scheme, is still surviving. The benefit shall accrue until the taxpayer reaches the age of 60. Once the taxpayer is retired, the differently-abled person will receive the lump sum or annuity amount."
Sarbvir Singh, chief executive officer, Policybazaar.com, said, “The relief allows a differently-abled person to benefit from an insurance policy bought by their parent for them in a more assured manner. Moreover, this will go a long way in helping differently-abled dependents gain financial independence."