Mind The Gap: Disability Insurance Shortcomings And Tax Deductions

Managing finances can be a challenge for anyone, but for individuals with disabilities, it often feels like navigating a maze with extra twists and turns. With the high costs of ongoing care, specialised equipment, and daily living expenses, finding a balance between budgeting and enjoying life can be tricky. While the Indian government has rolled out several tax deductions and benefits to offer some financial relief, and insurance companies promise coverage, these options don’t always cover all the bases. From unexpected gaps in insurance policies to underutilized tax deductions, there is a lot of scope of improvement in awareness and accessibility. 

A major issue with disability insurance in India is its limited coverage. "There's no insurance which takes care of the ongoing, like the aftermath process. For example, when you're out of the hospital, insurance does not cover a lot of that physiotherapy and light rehabilitation," said Rushabh Desai, founder of Rupee with Rushabh. He further emphasises, "There's so many disorders which are not covered in insurance."

Data from the National Sample Survey Office, or NSSO, report on health insurance in India reveals that only about 15% of the population has some form of health insurance, and of these, less than 2% have comprehensive coverage that includes disability-related expenses. These gaps are particularly problematic for individuals who need long-term rehabilitation or adaptive equipment, which are typically not covered by standard health or disability insurance policies. "Insurance does not cover things like wheelchairs," Desai said, giving further example of his own properly automated wheelchair, which cost him around a lakh and a half of rupees.

Disability insurance often fails to cover the full spectrum of expenses related to a disability. "For example, having a disabled-friendly bathroom or your room; a lot of things insurance does not help you on that," Desai said. The costs associated with modifying a home to be accessible can be substantial, and these modifications are essential for the well-being of individuals with disabilities, he said. 

Moreover, the financial burden extends beyond immediate costs. "Disability is not just a few thousand; it goes into lakhs," Desai said. He points out that the costs of managing a disability can quickly escalate, especially when insurance coverage is inadequate. A study by the Indian Council for Medical Research, or ICMR, found that individuals with disabilities spend, on average, 3-4 times more on healthcare compared to those without disabilities, largely due to the need for specialised care and equipment.

A study titled "Measuring the Financial Impact of Disabilities in India," published on the National Institutes of Health website, indicates that more than half (57.1%) of the households faced catastrophic health expenditure due to having a disabled member. Nearly one fifth (19.1%) of households that were above the poverty line before a member received disability-related treatment were pushed below the poverty line.

In the Union Budget of 2023-2024, the government increased tax deductions under key sections of the Income Tax Act, aimed specifically at easing financial pressures for families and individuals with disabilities. Section 80DD provides tax deductions to families who support a disabled dependent. For the assessment year 2023-24, the deduction limit was raised to Rs 1.25 lakh for dependents with severe disabilities, up from the previous Rs 1 lakh. For dependents with less severe disabilities, the deduction limit increased from Rs 50,000 to Rs 75,000. 

Section 80U offers tax deductions to individuals who have disabilities. In the 2023-2024 budget, the deduction limit for individuals with severe disabilities was raised to Rs 1.25 lakh, while for those with less severe disabilities, the limit was increased to Rs 75,000. Additionally, the government introduced a new deduction under Section 80DDB for medical expenses related to specific disabilities. This includes a provision for deductions up to Rs 40,000 per annum for ongoing medical care, such as physiotherapy or regular consultations with specialists. 
However, it is essential to note that these tax deductions and incentives are not available under the new tax regime introduced in recent years. The new regime offers lower tax rates but does away with many deductions and exemptions, including those beneficial to individuals with disabilities. Taxpayers must choose between the old regime, which includes these deductions, and the new regime, which does not.

By implementing targeted reforms and raising awareness, stakeholders can work towards making disability insurance more accessible and comprehensive for all.