Income Tax Exemption - Comprehensive Guide

Comprehensive Guide to Income Tax Exemption

Medical exemption under Section 9(5) of the Income Tax Ordinance

Introduction

Section 9(5) of the Income Tax Ordinance grants income tax exemption to people with significant medical disability. This is a benefit of considerable economic value, which can amount to hundreds of thousands of shekels per year. Our firm specializes in handling medical exemption applications and maximizing all entitled rights.

This guide details eligibility requirements, exemption ceilings, the application process and options for receiving retroactive tax refunds.

Part 1: Who is Eligible for Exemption?

Eligibility for income tax exemption is determined based on medical disability (not functional). The criteria are as follows:

Qualifying Disability Percentages

Condition	Exemption Eligibility
Blind	Eligible - no percentage limitation
100% disability from one impairment	Eligible
90%+ weighted disability from multiple impairments	Eligible - provided at least one impairment is 40%
90%+ weighted but no impairment of 40%	Not eligible

Minimum Disability Period

• 365 days or more - Full exemption up to the exemption ceiling
• 185-364 days - Limited exemption (up to approximately 81,960 NIS per year)
• Less than 185 days - No exemption eligibility

Part 2: Weighted Disability Calculation

When there are multiple impairments, the disability is calculated using a weighted method - each impairment is examined relative to the remaining healthy portion, not simply added together.

Calculation Example

A person with three impairments: heart disease (40%), gastrological problem (30%), skin problem (10%)

1. First impairment (highest): 40% full
2. Second impairment: 30% of remaining 60% = 18%
3. Third impairment: 10% of remaining 42% = 4.2%
4. Total weighted: 62.2% → rounded to 63%

Note: Even if the simple sum is 80%, the weighted disability will be lower!

Part 3: Exemption Ceilings (2025)

The exemption amount varies according to income type and disability source:

Income Type	Annual Exemption Ceiling
Personal exertion income - IDF/terror victims	684,000 NIS
Personal exertion income - other disabled	445,200 NIS
Non-personal exertion income	81,960 NIS
Interest from bodily injury compensation funds	337,200 NIS

Personal exertion income: Salary, business income, profession, occupational pension.

Non-personal exertion income: Rent, capital gains, dividends, interest.

Part 4: Qualifying Laws

The exemption is granted only to those whose disability was determined under one of the following laws:

• National Insurance Law - Chapter C (Maternity), Chapter E (Work Injury), Chapter I (Disability)
• Disabled Persons (Benefits and Rehabilitation) Law - IDF disabled
• Compensation for Terror Victims Law
• Nazi War Victims Law
• Nazi Persecution Victims Law
• Ringworm Victims Compensation Law

Part 5: Common Medical Conditions Qualifying for Exemption

A wide range of medical conditions may lead to disability percentages qualifying for exemption:

• Heart and vascular diseases - Heart attack, heart failure, bypass surgery
• Cancer diseases - All types of malignant tumors
• Neurological diseases - Parkinson's, multiple sclerosis, stroke
• Mental illnesses - Severe depression, bipolar disorder, schizophrenia
• Diabetes - Especially with complications
• Kidney diseases - Kidney failure, dialysis
• Lung diseases - COPD, severe asthma
• Orthopedic injuries - Amputations, joint replacements, spinal injuries
• Blindness and severe visual impairment

Part 6: Application Process

1. Gather medical documents: Disease summaries, tests, expert opinions for each impairment
2. Complete forms: Form 1516 (exemption application) + Form 169 (disability percentage determination)
3. Submit to tax assessor: At the Income Tax office in your residence area
4. Pay fee: 679 NIS for the medical committee
5. Medical committee: National Insurance will summon for a medical committee
6. Receive decision: The tax assessor will notify of exemption eligibility

Part 7: Retroactive Tax Refunds

If disability qualifying for exemption was determined, retroactive tax refunds can be obtained for past periods:

• Employees: Up to 6 years back (not including current year)
• Self-employed: Usually 3 years prior to the committee's decision

Important: Retroactive refunds can reach tens and even hundreds of thousands of shekels!

Part 8: Appeals

If the committee determined disability percentages that don't reflect the medical condition, you can appeal:

Appeal on Medical Committee

You can submit an appeal on the committee's decision. Appeal fee payment: 957 NIS.

Appeal to Labor Court

The appeal committee's decision can be appealed to the Labor Court on legal questions.

Part 9: Special Cases

Automatic Exemption

In certain cases, the exemption is granted automatically, without need for separate application:

• IDF disabled receiving allowance from the Ministry of Defense
• Terror victims
• Blind persons with blindness certificate

Using Existing Disability Percentages

If disability percentages were already determined by another committee (National Insurance, Ministry of Defense, Ministry of Health), you can request that the tax assessor rely on them without need for an additional committee.

Additional Benefits in Provident Funds

Those with 75% disability or more are entitled to tax benefits in provident funds, even if they don't reach the 90% exemption threshold.

Why Legal Support is Recommended

Our attorneys specialize in income tax exemption processes and assist at all stages:

1. Full disability percentage maximization - Ensuring receipt of maximum entitled percentages
2. Proper committee preparation - Gathering documents and emphasizing impairments
3. Retroactive refunds - Maximizing refunds for past periods
4. Appeal support - Representation at appeal committees and court
5. Significant savings - Refunds can reach hundreds of thousands of shekels

For more information on related topics, visit our expertise pages: insurance claims and disability benefit claims.

Contact Ron-Pestinger Law Office

Suffering from health problems? We are here to help you check your eligibility for income tax exemption and maximize all the rights you are entitled to. Our team specializes in handling medical exemption applications.

Contact us for a free initial consultation

Disclaimer: This guide is general information only and does not constitute legal or tax advice. Amounts are current as of January 2025 and may change. For personalized advice, please contact our office.