A child and his parents share a unique and natural bond, across cultures, the world over. Parents take care of a child until she/he grows up and when the parents grow old the child takes care of them, thus making the cycle complete.
Even income-tax laws recognise this reciprocity and provides for tax benefits in respect of expenses incurred in taking mutual care.
In this article, I have touched upon some of the important provisions of the present income-tax laws affecting tax treatment of the amount spent while taking care of each other. For the purpose of claiming these benefits, the term ‘child’ also covers the ‘step’ child as well as the ‘adopted’ child.
Benefits available for the expenses incurred on bringing up a child.
* Leave Travel Assistance:
Any amount received from one’s employer as travel concession or assistance, popularly known as leave travel allowance (LTA), which is spent on journey undertaken with your child and spouse, siblings and parents is exempt from income tax two times in a block of four years is exempt from income tax.
* Education allowance:
Education allowance received from your employer is exempt up to Rs 100 per month for a maximum of two children. Moreover, any hostel allowance received for your children from your employer is exempt up to Rs 300 per month per child.
* Amount paid for life insurance, etc:
The Income Tax Act provides for an aggregate deduction of Rs 1 lakh from your income in respect of the following payments made for the benefit of your child under Section 80 C together with other amounts paid by you.
i. Any amount paid towards life insurance premium on the life of any child;
ii. Any amount paid for the purpose of buying deferred annuity plan on the life of any child;
iii. Any amount deducted from the salary of a government employee towards securing deferred annuity or for making provision for your child up to 20% of your salary;
iv. Any contribution paid for buying unit linked insurance plans in the name of your child;
v. Any amount paid towards tuition fee to any university, college, and school or to education institution located in India in respect of two children for the purpose of full-time education;
vi. Contribution towards Public Provident Fund account in the name of any child.
* Amount spent for taking medical treatment and health
insurance of your child:
The Income Tax Act also allows you a deduction up to Rs 15,000 from your income in respect of any amount paid for medical insurance for yourself together with your spouse and your dependent children u/s 80 D.
You can also claim deductions in respect of expenses incurred for medical treatment, rehabilitation or training of a child with special needs or for paying for life insurance in order to provide for maintenance of a child with special needs. The deduction available is for Rs 50,000. However, if the child is suffering from severe disability, the claim can go up to Rs 1,00,000.
In addition to the cost of purchasing medical health insurance and treatment of a child with special needs, the income-tax laws also allow you deduction in respect of amounts spent for medical treatment of your child for specified diseases. Deduction is available for up to Rs 40,000 under Section 80DDB
* Amounts paid in respect of interest on education loan for your child:
Income-tax laws also allow you a deduction of interest paid on a loan taken from specified institutions for your child, for pursuing higher education. This deduction, unlike other deductions mentioned above, is available without any monetary limits. Hence, the entire interest paid by you in respect of a loan taken by you for education of your child is tax deductible to you.
Now, for the payback.
Now your child is taking care of you and he too is getting tax deduction benefits for taking care of his parents.
Any amount of LTA money received from your employer for the purpose of travel of your dependent parents with you is exempt from income tax subject to certain conditions.
The major cost to be incurred by an earning child on his parents in addition to the day-to-day expenses is the cost in respect of medical care. The Income Tax Act provides for deductions in respect of various items related to medical expenses.
First of all, the Income Tax Act provides for a separate deduction in respect of amounts paid in respect of buying medical insurance for the parent or parents for Rs 15,000. This amount of deduction goes up to Rs 20,000 in case the parents are senior citizens.
The Income Tax Act also allows deduction in respect of any expenditure incurred on medical treatment, training and rehabilitation of parents with disability. Deduction is available for up to Rs 50,000. However, in case a parent suffers from severe disability, the deduction claimed can be up to Rs 1 lakh.
The tax laws also provide for deduction up to Rs 40,000 for medical treatment of parents who are suffering from specified diseases. The deduction goes up to Rs 60,000 in case the parents are senior citizens.
From the above discussion, it is clear that the income-tax laws recognize the need to support the parents as well as the child and grant tax benefits accordingly. The provisions of the proposed Direct Tax Code have not been discussed here since they are proposed to be introduced only from April 1, 2012 and may undergo a lot of changes by then.
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