Budget 2022- Is the Benefit for Disabled Really Beneficial?

Budget 2022 has just been announced and there is a benefit introduced for families with disabled dependent. Is it enough? Thats the question families will be asking. There are always expectations from the budget. This year too its no different but any small step by the government is acceptance of families concerns.

Budget 2022

When I am writing this article we are already debating what was good and what was not so good. Analysts will hold different views though this time it looks to be more positive in favor than against it.

It has been many years when we have seen any news for Disabled benefits in the budget. Not many will recall when we have seen any provisions apart from the disability bill 201. Financials are a great concern and any family with disabled dependent bound to have high expectations considering lack of enough provisions for their benefits.

In Budget 2022 provision does came in for families with disabled dependent. How does this provision benefit and to whom is what I have written.

Let me first take you through the provision which has been announced in  budget 2022-

Current Status

If there is any insurance policy with cash value purchased specifcially for disabled dependent, then there are certain benefits available to parent/guardian as below-

Sec 80DD

Under this section the any individual/huf and a resident in India can claim deduction from income under these 2 conditions:

  1. Any expenses incurred on the medical treatment of (including nursing), training and rehabilitation of a dependant, being a person with disability;
  2. Any amount paid to LIC or any other insurer or administrator or specific company in respect of scheme for the maintenance of disable dependent.

So a parent/guardian of a disabled dependent can claim deduction of expenses or premium paid to LIC or any other insurer. Such insurance policies are bought for the benefit of disabled dependent and the proceeds are utilized for their maintenance only. It can be a lump sum pay out or an annuity payout. Earlier Jeevan Adhaar and Jeevan Vishwas were the policies with such benefits.

The Benefits Under Insurance Policy

Here the specific mention is to insurance policies because that’s where the change has been introduced. As per subsection 2 of Sec 80DD the deduction on insurance policy is allowed only when the pay out of lump sum or annuity is paid to the disabled dependent at the death of the policyholder i.e. parent/guardian. In general no pay out I given in these policies before the death of the parent/guardian.

Subsection 3

There is also a clause under subsection (3)  Sec80DD which says that if the disabled dependent predeceases parents/guardian then the lump sum amount/annuity will be treated as income of the year it is received and will be taxable accordingly.

Below is the Income Tax Provision under Sec 80DD :

Sec 80DD

The Court Case

It is worth to mention this 2017 court case since it sets the basis for the changes which has been introduced now.

“In a writ petition filed by Mr Ravi Agarwal vs Union of India and another, Justice A.K. Sikri observed that that there could be harsh cases where handicapped dependants may need payment of annuity or lump sum basis even during lifetime of their parents/guardians. It was further observed that the Centre may take into consideration all the aspects, including those where a disabled dependant might need payment on annuity or lump sum basis even during the lifetime of the parents or guardians.”

The comments were exactly what is needed by the families having a special needs dependent.

Changes In Budget 2022 for Disabled

Now there has been a change introduced in budget 2022 around this benefit under Sec 80DD.

Considering the comment made in the 2017 court case the benefit pay-out has now been allowed during the lifetime of the paren’t/guardian under few conditions.

Firstly, the parent /guardian on whose name policy subscription has been made should be above 60 years of age. Secondly the premium/deposit should have been discontinued in the policy. If these 2 conditions are satisfied, then pay out of the policy can be given to the policyholder for maintenance of disable dependent.

The third change is the Tax benefit. Since the pay out has been allowed during the lifetime of the parent/guardian the benefit under sec 80DD also has been extended to this period.  Budget 2022 has proposed that Sub section 3 of this Income tax benefit won’t apply for the payout during the lifetime of the parent/guardian. This means the pay-out won’t be considered as income and thus not taxable as income. However, the clarification has to emerge whether in case of annuity the payout will be completely tax exempted or only deduction will be allowed.

Applicability of Budget 2022 Provisions

Budget 2022 provisions for disabled will be applicable from April 1 2023 and so parents/guardian can avail them from next Assessment Year i.e.2023-2024.

Who Finally Benefits ?

There is no second thought that most families with special needs dependent needs a regular income. This requirement is higher when the parent’s/guardian reaches beyond 60 years of age. The budget provisions are relief only to those parents who are already at this age threshold and holding old insurance policies of LIC – Jeevan Adhar and Jeevan Vishwas. In these polices the pay-out to the beneficiary is at policyholder death. With this change the pay-out may be allowed now once parent/guardian attains 60 years of age. For other parent’s specific insurance policies with Disabled Dependent as the beneficiary have to be introduced. There are annuity policies like Jeevan Shanti and Jeevan Akshay but pay-out to disabled is only after the death of parents.

My Views

It’s a welcome move but there is lot more to be done. This provision does addresses concerns of many parents who are at higher age or nearing that and holds such insurance policies. My expectations are some savings scheme with additional tax benefit for the families or reintroduction of those LIC policies which catered specifically to the Disabled dependent benefits. But any small step is a direction towards acceptance of special children families concerns and so I am happy with the provision.

Watch the video below to understand more on Budget 2022 provision for disabled and its applicability –

About the Author

Jitendra P.S. Solanki

Jitendra is a SEBI Registered Investment Adviser (INA10000184) and has earned the much-respected professional designation of Certified Financial Planner (CFPCM ) and Chartered Trust & Estate Planner (CTEPTM). He is a post graduate from IIT - Roorkee and has spent 15 years in Financial Services Industry working with leading financial institutions & Banks, advising families on their Financial well-being. Jitendra specializes in advising families with special needs children on various financial & legal aspects.

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