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Save Tax with Health Insurance

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How to Save Tax with Health Insurance?

Want to save income tax by investing in health insurance? Here are some important things that you should know before investing in health insurance for Tax Planning to save tax. Tax-saving is an essential part of financial planning, which needs to be done wisely so that it serves the dual-objective, i.e.

  1. Help you to meet your financial goals when you come across a medical emergency.
  2. To save on income tax annually.

Before you actually start investing in best health insurance to reduce your income tax liability while staying healthy, read below some the key benefits of investing in a health insurance policy:

  • Health insurance is one of the best investment options in the market, which offers several benefits to you.
  • It safeguards you when you face any medical emergency. It covers the cost of medical treatment, in case of unfortunate events.
  • There are several other benefits of being covered by health insurance, such as tax benefits, cashless hospitalization facility, domiciliary treatment expenses, and more.

Let’s Check Ways to Save Income Tax with Health Insurance

There are some important norms under Section 80D, which allow you to avail income tax exemption, based on the premiums paid for one or more health insurance policies purchased for your family (spouse & children) and parents.

Save Income Tax with Health Insurance

Save Tax on Health Insurance Premium Payment

Being a policyholder, you can avail a deduction up to Rs. 25,000 annually subject to the premium paid for a health insurance policy. The coverage offered by the policy can be availed by you, your spouse, and dependent children. The limit will increase up to Rs. 30,000 if you or spouse is 60 years and above. This limit is backed by an additional coverage of Rs. 5,000 for expenses incurred for health check-ups of the family members, including parents, spouse, and dependent children.

You may like to Read: Section 80C of Income Tax Act

a) Preventive Health Checkups

You can save on income tax based on expenses incurred for preventive health check-ups during the policy term. The limit of tax exemption is Rs. 25,000 if you are below 60 years of age and Rs. 30,000 for senior citizens under Section 80D of Income Tax Act, 1961. You can also claim an additional benefit of coverage against preventive health check-ups of up to Rs. 5,000 every year.

b) Health Insurance Policy for Parents

Under section 80D of the Income Tax Act, 1961, you can claim an additional tax-saving benefit if you pay the premium for health coverage availed by any of your parents. You are eligible for a deduction of up to Rs. 30,000 per year, though. In other words, you can save up to Rs. 30,000 for either of your parents aged 60 years and above.

c) No Tax Benefit on Cash Payment

To avail tax benefit, the premium of a health insurance policy should be made through certain banking modes, such as a demand draft, cheque, debit or debit cards, or net banking. However, you can save on income tax, based on expenses incurred for preventive health check-ups for which the payment used to be made in cash.

Eligibility for Income Tax Deduction u/s 80D of ITA

The premiums you pay towards health insurance coverage are exempted from your income tax liability for a particular financial year. If you have a family floater health insurance plan that covers you along with your spouse and children, then the premium payable for the coverage availed by individual family members reduces your income tax liability. The following members of the family can benefit under this section of income tax act:

  • You (policyholder)
  • Your Spouse
  • Your Children
  • Your Dependent Parents

Tax benefit under this section can be claimed by a HUF (Hindu Undivided Family), based on the premium of an individual member subject to the upper limit of tax benefit under this section.

Let us take an example wherein yours is a family of six members and the ages of individual family members are:

Family Member

Age in Years

You

34

Spouse

33

Two Children

10 and 6

Father

62

Mother

58

 

You and your family are covered under a family floater plan that provides protection to you along with your spouse, children, and dependent mother. You pay annual premiums of Rs. 15,000 and Rs. 28,000 for a family floater plan and one availed by your father, respectively. The expenses incurred for preventive health check-ups for you and your family is Rs. 15,000 and for your father is Rs. 7,000.

The final amount paid by you is Rs. 43,000 (Rs. 15,000 + Rs. 28,000) for the health insurance premium plus Rs. 22,000 (Rs. 15000 + Rs. 7,000) for preventive health check-ups. So, you are eligible for the tax benefit up to Rs. 53,000 (Rs. 43,000 + Rs. 5,000 + Rs. 5,000) annually.

d) Health Insurance for Very Senior Citizens

The cost of medical expenses of senior citizens (80 years or plus) who are not covered under any type of health insurance policy is eligible for tax deduction up to Rs. 30,000 per financial year.

Under section 80D of Income Tax Act, you can claim a deduction up to Rs. 35,000 towards the expenses incurred for medical treatment and preventive health check-up of both your parents who are senior citizens.

Save Tax Under Section 80DDB (Treatment of Critical Illnesses)

Apart from just protecting you against critical diseases, your health insurance policy also provides tax deductions up to Rs.40, 000 and Rs. 60,000 for senior citizens and Rs. 80,000 for very senior citizens. In case medical expenses incurred are due to a specified illness, such as cancer, chronic renal failure, or Cardiac disease, you are allowed to avail a tax deduction between Rs. 40,000 and Rs. 80,000. There are some specific types of illness covered under the list of Rule 11DD. It is mandatory to attach a certificate issued by the doctor while filing income tax return.

You can claim these benefits for self, spouse, parents, children and siblings.

Tax Planning Under Section 80DD (Treatment of a Dependent with Disability)

In case you take care of the treatment expenses of a disable (only when dependent are your spouse, parents, children, and siblings), you are eligible for a deduction up to Rs. 75,000. Against the expenses incurred for the medical treatment, training rehabilitation, nursing, and maintenance of a dependent with a disability, a caretaker is eligible for a tax deduction up to Rs. 1.25 lakh for severe disability.

Save Tax Through Section 80U (Person with Disability)

A person with a disability is eligible for a tax deduction of Rs. 75,000 under Section 80U. In case of severe disability, the limit increases up to Rs. 1.25 lakh.

Income Tax Deduction on Medical Allowance under Section 17

Medical expenses paid with your salary by your employer under the medical allowance for you or your family (i.e. siblings, children, spouse, and dependent parents) are eligible for income tax deduction up to Rs. 15,000 per financial year.

You may also like to Read: Health Insurance Tax Benefits

Refer to below table to get the real picture of tax saving with health insurance plan:

EXPENSES

ACTUAL EXPENSE

DEDUCTION ALLOWED

FINAL DEDUCTION

Health Insurance Premium for Self, Spouse and Children

Rs. 15,000

Rs. 25,000

Rs. 15,000

Preventive Health Check-up for Self, Spouse and Children

Rs. 15,000

Rs. 5,000

Rs. 5,000

Total for Self, Spouse and Children

Rs. 30,000

Rs. 25,000

Rs. 20,000

Health Insurance Premium (Senior Citizen)

Rs. 28,000

Rs. 30,000

Rs. 28,000

Preventive Health Check-up for (Senior Citizen)

Rs. 10,000

Rs. 5,000

Rs. 5,000

Total for Parents (Senior Citizen)

Rs. 38,000

Rs. 35,000

Rs. 30,000

Total Deduction Available for Year

Rs. 50,000

 

Please note that the premium paid for health insurance for siblings is not eligible for tax deduction. You can consult an insurance broker or agent for any such query if required. Insurance companies also provide assistance to their customers through their respective Customer Care Units. Hope this article has shared with you some useful information related to the tax benefit of health insurance.

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