Shedding light on tax benefits for adoptive parents in India
What's the story
In India, the government provides tax benefits to incentivize adoption.
This not only eases the financial burden on adoptive parents but also ensures the well-being of adopted children.
This article breaks down the complex provisions of the Income Tax Act, making it easier for adoptive parents to understand and claim these benefits.
Section 80C
Understanding Section 80C deductions
Adoptive parents can claim deductions under Section 80C of the Income Tax Act in India.
This section provides deductions on tuition fees paid for two children, including adopted children.
The cap limit under this section is ₹150,000 per annum.
Please note, the deduction is for tuition fees, not including development fees or donations.
Medical expenses
Claiming deduction for medical expenses
Section 80DDB offers respite to individuals who bear the brunt of medical treatment costs for specified diseases or ailments for themselves or dependents (including adopted children).
The deduction amount hinges on the age of the person undergoing treatment, and can reach up to ₹40,000 or even higher if the dependent is a senior citizen.
Adoption fees
Rebate on adoption fees
Without a specific clause in the Income Tax Act for adoption fees, adoptive parents can still find financial reprieve through miscellaneous deductions.
Some legal expenses incurred during the adoption process are eligible for these deductions.
This covers costs necessary to legally finalize the adoption, providing some financial relief to adoptive families embarking on this journey.
Education allowance
Exemptions on children's education allowance
Many employers offer Children's Education Allowance (CEA) as part of their salary packages.
Adoptive parents can claim exemptions on CEA up to ₹100 per month per child for up to two children under Section 10(14).
Also, hostel expenditure allowance is exempted up to ₹300 per month per child for up to two children.
Planning and grants
Financial planning and adoption grants
Financial planning: Adoptive parents should consider long-term financial planning, including investments in mutual funds or savings schemes that qualify under Section 80C.
Adoption grants: Many non-governmental organizations offer grants and financial assistance specifically for adoptive families.
Utilizing these resources can greatly reduce the financial burden of adoption, providing significant help in managing the costs.