In a relief to the disabled as well as their guardians, the Budget 2022 has introduced a minor taxation tweak in the insurance product for disabled.  Earlier, the premium paid on insurance policies bought by parents of differently abled children or dependants qualified for deduction under Section 80DD only if the annuity or lump sum was paid to the disabled child on the death of the policyholder. Now, the annuity or lump sum can be paid to the disabled child even during the lifetime of the parent who is above 60 years old. 

 

It has been proposed that the tax deduction under Section 80DD will be provided even if the parent or guardian is alive provided he is over 60.  Another implication is that the payout to the disabled, whether annuity or lump sum, will no longer be taxable, which it earlier was. However, we need further clarity on this as there’s still some confusion about it. 

 

According to Finance Minister Nirmala Sitharaman, the tax change is as follows: “The present law provides for deduction to the parent or guardian only if the lump sum payment or annuity is available to the differently abled person on the death of the subscriber, that is, parent or guardian. There could be situations where differently abled dependants may need payment even during the lifetime of their parents/ guardians. I propose to allow the payment of annuity and lump sum amount to the differently abled dependant during the lifetime of parents/guardians, that is, on parents/ guardians attaining the age of 60 years.”