Tax Deductions for COVID-Related Expenses

An overview of tax exemptions and tax relief provided by the Government to taxpayers who have incurred COVID related expenses.

The Government of India through its Central Board of Direct Taxes (CBDT) has provided relief to taxpayers in the form of tax exemptions. Specifically, taxpayers filing their Income Tax Returns (ITRs) for FY 2020-21 can now claim tax deductions for covid-related expenses. The article discusses the empowering statute under which taxpayers normally avail deductions related to health expenses and the specific case of availing tax deductions for covid-related expenses.

1. What are the Provisions Normally Available to Taxpayers?
Normally, a taxpayer, who is a resident Indian, can claim tax deductions for expenses on medical treatment of specific ailments under Section 80DDB of the Income Tax Act, 1961. The benefit can be claimed by the taxpayer for himself or a dependant.

Who Qualifies as a Dependant?

Under section 80DDB, following qualify as “dependants” of the taxpayer:

1) If the taxpayer is an individual –
  • spouse
  • children
  • parents
  • brothers
  • sisters
 
2) If the taxpayer is a “Hindu undivided family”, any member of the family.

What is the Amount Allowed as a Deduction?

From FY 2018-19 onwards, the tax amount that can be deducted is as following:
  • A sum of Rs. 40,000 or a deduction of the amount actually paid, whichever is lower.
  • In case the taxpayer or his dependant is a senior citizen, Rs. 1,00,000 or the amount actually paid, whichever is lower.
Against Which Ailments Is the Deduction Under Sec. 80DDB Available?

The list of ailments against which a deduction is available under section 80DDB is provided by Rule 11DD of the Income Tax Rules.

This list, however, does not cover Covid-19 infections. As such, the Government in a press release dated 25th June, 2021, notified taxpayers that they would be eligible for tax deductions against expenses related to Covid-19 infections.

2. Details of the Covid-19 Related Tax Deductions
As per the press release, the Covid-19 related tax exemption is available under two circumstances:

a) For Treatment
The exemption applies to taxpayers who have received financial help from their employers and any other person, such as friends, relatives or well-wishers, for the treatment of Covid-19 during FY 2019-20 and subsequent years.

What is the Amount Allowed as Deduction?

The deduction is applicable to the specific amount that has been received by the taxpayer for medical treatment from his employer or from any other person. The press release does not specify any upper limit on this amount.

b) Death of Taxpayer

The deduction is applicable to taxpayers who lost their life due to Covid-19 during FY 2019-20 and subsequent years and their family members received financial assistance from their employers and any other person, such as friends, relatives and well-wishers, in the form of ex-gratia payment.

What is the Amount Allowed as Deduction?
  • For the amount received from an employer, the deduction is applicable without any limits on the amount.
  • For the amount received from any other person, the deduction is applicable up to an amount of Rs. 10 lakh in aggregate.
 
3. Exemption on Covid-19 Health Insurance
According to Section 80D of the Income tax Act, taxpayers are eligible for deduction from their income for medical or health insurance premium paid during the previous financial year. This exemption is also available for preventive health check-ups, top-up health plans and critical illness plans. Therefore, the premium for any of such policies covering Covid-19 would be eligible for an exemption under Section 80D and would also include any health policy bought specifically to cover Covid-19 related expenses.

Who Is Eligible for Exemption under Section 80D?
  • If the taxpayer is an individual, the taxpayer can claim exemption for insurance premium paid for:
  1. Self
  2. Spouse
  3. Dependent Parents
  4. Dependent Children
  • If the taxpayer is a “Hindu undivided family”, he can claim exemption for any family member.
  • Any other entity, such as, a company or a firm cannot claim exemption under this section.
What is the Amount That Can Be Claimed as Deduction?
  • For the amount paid to effect or keep in force a health insurance of the individual taxpayer, his spouse, dependent children, or parents; and in case of a Hindu undivided family, any member of that family, an amount not exceeding Rs. 25,000 can be claimed.
  • For the amount paid for the medical expenditure incurred on the health of the taxpayer, his spouse, dependent children, or parents; and in case of a Hindu undivided family, any member of that family, an amount not exceeding Rs. 30,000 can be claimed.
  • For the amount paid for the preventive health check-up, an amount not exceeding Rs. 5,000 can be claimed.