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Tax Exemption on Health Insurance

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Tax Exemption on Health Insurance under Section 80D

A majority of the financial planners recommend that the primary step in every financial preparation should be to make sure that one has sufficient health insurance plan. Adequate health insurance coverage for self and family is a must-have for all.

Considering the rate of inflating medical costs nowadays, it is highly imperative to hold a health insurance. Without sufficient coverage, your savings can get wiped out and will lead to financial crisis.

Did you know that Health Insurance provides immense benefits, besides just medical coverage? One such benefit is that of the health insurance tax saving benefit. We at Policy Bazaar are happy to help you understand this important benefit of health insurance. The premium that you pay for your health insurance not only fetches you an efficient health cover but also aids in saving tax.

Reduce your annual taxable income and in turn, lessen your tax liability for the given financial year. The premium paid for your health insurance leads to financial security and greater tax savings. It is not just a cost incurred by you but also translates to good savings in the form of tax benefits and tax deductions.

In this article, we will help you understand how to avail health insurance tax benefits, based on the payment paid for health insurance.

Tax Benefits of Health Insurance Under Section 80D

The premium that you pay for your medical insurance is tax deductible as per section 80D of the Income Tax Act, 1961. This means that you can claim for tax deductions on health insurance, given that you are paying the premium on a mediclaim policy which is in the name of

  • Self
  • Your spouse
  • Your parents
  • Your dependent children

Health insurance premium paid for self, spouse, dependent children or parents qualifies for tax deduction up to Rs.25,000. This limit has been increased from Rs.15,000 from the previous year to Rs.25,000 in the financial year of 2016-2017. What’s more, if any of the person or family member fall under the senior citizen category, then the deduction amount limit is up to Rs.30,000.

Tax Exemption on Health Insurance

Let us see a table that will demonstrate the tax benefits of health insurance under section 80D in detail

Scenario

Premium paid for self, spouse and children

Premium paid for Parents

Total Tax Deduction Under Section 80D

None in your family has reached 60 years of age, and you have no insurance for your parents

Up to Rs.25,000

NA

Up to Rs. 25,000

None in your family has reached 60 years of age, and you have insurance for your parents both aged below 60 years

Up to Rs.25,000

Up to Rs.25,000

Up to Rs. 50,000

Coverage for self, spouse and dependent children with the eldest member less than 60 years & Coverage for Parents above 60 years of age

Up to Rs.25,000

Up to Rs.30,000

Up to Rs. 55,000

Coverage for self, spouse and dependent children with the eldest member above 60 years & Coverage for Parents above 60 years of age

Up to Rs.30,000

Up to Rs.30,000

Up to Rs.60,000

 

Let us take an example to understand this better.

Illustration 1: Mr. Ajay (45 years) is self-employed and has taken a health insurance for self and family. The insurance policy for himself, his spouse and dependent children costs Rs.22,000. He also pays Rs.31,000 towards the health insurance coverage of his parents who are above 60 years. In this case, his total tax deduction would be Rs.22,000 + Rs.30,000 with a total of Rs.52,000.

Section 80D

As for the income tax act section 80D of 1961, the premium can be subtracted from your total income.

Total income = total gross income from all fonts

Taxable Income = total gross income - tax deductions

Individual can claim for deduction under the following stipulated scenarios:

  • Non-cash payment of medical insurance premium paid by the individual for self and on behalf of the family member including spouse, dependent children and parents. Health insurance benefits are available to the individual and HUF (Hindu Undivided Family)
  • Contribution to a central government health scheme by the individual tax payer
  • Amount paid for preventive health check-up and expenses arising out of such check-ups
  • Expenses incurred towards the well-being of a very senior citizen aged above 80 years and who does not have health insurance

Extensions of Section 80D

Section 80D has evolved into more sections to widen the scope of medical expenses and insurance needs. Let us look briefly into them:

1. Section 80DD - Deduction for Disability of a Dependent Family Member

If an individual taxpayer bears medical expenses towards maintenance of dependent family members with severe disability, then they can avail tax deductions up to Rs.1,25,000

2. Section 80DDB - Deduction for Specified Critical Diseases

Expenses incurred by the individual on the treatment of critical ailments like Cancer, AIDS, neurological diseases, Parkinson’s disease, Haemophilia, Thalassaemia and chronic renal failure, are tax deductible. If the person is aged below 60 years, tax deductions up to Rs.40,000 can be claimed, and if aged above 60 years, tax deductions up to Rs.60,000 can be claimed. If the person is aged above 80 years and fall under the very senior citizen category, one can claim up to Rs.80,000 as tax deductions.

3. Section 80U - Deduction of Disability for Individual

Persons with physical disability like blindness or even mental retardation can avail tax deductions up to Rs.75,000. For cases of severe disability, the individual can claim up to Rs.1,25,000 as deductions. Deduction under this section is provided for the individual themselves if disabled, and Section 80DD is for the dependent family members of the individuals, if disabled.

Important Points on Health Insurance and Tax Benefits under section 80D

1. Tax Benefit Limits

The quantum of the tax benefit of health insurance depends on the age of individual and family members who are insured. For senior citizens, the maximum limit is Rs.30,000, and on the other hand for members below 60 years, the limit is capped at Rs.25,000

2. Preventive Health Checkups

Within the given maximum limit of Rs.25,000 or Rs.30,000 based on the age, you can also avail tax benefit for any preventive health check-ups done during the year for up to Rs.5,000. This means that if you pay a premium of Rs.20,000 towards health insurance and undergo a preventive health check-up costing Rs.4,000 - the sum total of Rs.24,000 qualifies for tax exemption under Section 80D.

Most hospitals offer preventive health check-up packages for your well-being. With many life-threatening ailments on the rise, these says, it is always good to keep a tab on your health. Take advantage of these health check-ups and also avail additional tax benefit on them.

3. Cash Payment

In order to avail tax benefit, the income tax laws stipulate that the premium is to be paid through any mode of payment, except for cash payments. Mode of payment can be anything from credit cards, debit cards, net banking, etc. However keep in mind that cash payments are best to be avoided.

4. Insurance for In-Laws

You can avail tax exemption for the premium paid for your parents only, and your in-laws will not qualify for tax deduction benefit. However, your spouse can pay the premiums from their income and avail the tax benefits

5. Payable premium is the maximum tax deduction

The total payable premium of the health insurance coverage minus prevalent service tax charges and other charges is the final amount of tax deduction from your total income. Also, any preventive health check-up expenses up to Rs.5,000 can be added to the premium and availed a tax deduction as per the given limits.

6. Insurance for Dependent Children

If your children are aged above 18 years and employed, then they cannot be covered. However, if your children are under 25 years and unemployed, then you can avail coverage for them.

7. Insurance for Siblings

If you pay for insurance on behalf of your sister or brother, you cannot claim for tax deductions on health insurance. However in the case of serious medical disabilities and expenses arising due to the treatment of dependent siblings, under Section 80DD, you can avail tax deductions.

8. Tax Deductions on Health Insurance Policies and Mediclaim

You can claim for deductions on mediclaim policies provided by your employer and policies taken independently by you. Health insurance policies and mediclaim policies for the individual and HUF (Hindu Undivided Family) residing as permanent citizens in India qualify for tax deductions.

You may like to Read: Deduction Under Section 80C

Conclusion

Tax exemption on health insurance yields to several benefits for the individual who has bought a health insurance policy for themselves and their family. Utilize the several tax deductions as highlighted above and earn great savings.

We at Policy Bazaar are here to simplify your health insurance needs. Health insurance is not just an essential investment, but also acts as a safety shield that protects you against unforeseen events. Make a wise decision to buy the right insurance policy for you and your family, in order to earn health insurance tax benefits and several other benefits in the long run.

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