A Detailed Guide on Tax Saving and Health Insurance
Health insurance policy acts as a savior for many during tragic times such as medical emergencies. It not only offers financial assistance to you and your loved ones during critical treatments but also helps for tax-saving purposes as well. If it is an emergency or a planned hospitalization, having a health insurance policy is often beneficial due to the cashless claim facility it offers. But the most significant benefit is that you can save tax with a health insurance policy which not many are aware of.
In addition to protecting yourself and your family member from the rising medical expenses, you can also avail tax benefits on the premiums paid towards your health insurance under Section 80D of the Income Tax Act, subject to terms and conditions. This makes a health insurance plan an intelligent investment.
How Does Health Insurance Help You Save Taxes?
Although the ultimate aim of purchasing a health policy is to provide safe space for your dependents to manage the hospital bills during treatment, the premium that is paid towards the policy can also fetch good savings on taxes paid. While the premium is fixed depending on your risk and requirement, the Income-tax department of India has allowed policyholders to avail income tax benefits over this paid amount serving double benefit. Apart from the insurance proceeds amount that one is eligible for through term insurance, these savings on health insurance shall add more advantages on the whole.
Section 80D: You may very well know that section 80C provides tax benefits on life insurance, on the premiums paid. Similarly, the Section 80D of the Income Tax Act, 1961, extends tax advantages on health insurance premiums, provided it satisfies the below conditions:
- The total limit on the amount of deduction shall not exceed Rs 25,000 for a policy taken for self, spouse, and dependent children.
- An additional deduction of Rs 25,000 is permitted in case the insurance policy is taken under your parent’s name if they are less than 60 years of age.
- In the case of parents above 60 years of age (senior citizens), the plan is taken under their names, and you may claim an additional Rs.50,000 as a tax benefit under section 80D.
Here is an illustration that will help you understand the tax benefits of a health insurance policy in a straightforward manner.
Mr. Santhosh purchased a health insurance policy with an Rs.30 lakh sum assured and an annual premium of Rs. 20,000. The policy provides coverage for himself, his wife, 2 kids. Since he has taken a separate policy that also covers senior citizen parents, the maximum exemption limit goes to Rs. 50,000. In addition to this, if they undergo preventive health check-ups, the cost of Rs.5000 can also be claimed for the tax deduction, taking the total exemption limit to Rs. 75,000. Santhosh has managed to increase his exemption limit by providing coverage for the entire family, including his parents, which is a good idea. It serves multiple benefits for them and for him. Therefore, the higher sum assured and the number of dependents play a significant role in helping you save income taxes for that year.
Things to Note about Section D
Though health insurance premiums can be claimed under section 80 D, the premiums paid in cash are excluded from the tax exemption clause. While you are eligible to claim tax exemption for making premium payment via demand draft, cheque, net banking, debit, and credit cards, premium payment must originate from an account in the name of the taxpayer only and not from any other third party.
Similarly, the tax exemptions are eligible only on the actual health insurance premium paid and not on extra charges, such as GST, service charge, etc. If your health policy also has a critical illness component, then the premium paid for the add-on can also be claimed for tax deduction under critical illness deduction.
Tax saving with Health check-ups: The preventive health check-ups that you may undergo in a year can fetch you tax benefits of up to Rs 5,000 within the maximum limit of Rs 25,000 or Rs 30,000 (depending on age). It simply means that in case of paying a premium of Rs 20,000 towards Mediclaim, by opting for a health check-up of Rs 5,000, the total of Rs 25,000 can be claimed for tax deduction under section 80D. With lifestyle diseases increasing, it is always better to keep an eye on one’s health by choosing preventive health check-ups, which again helps to save on income taxes paid.
Tax savings on health insurance riders: Although the section 80D tax benefit is applicable on the premium paid towards health insurance policy, it does not have any restriction on the type of health plans that one may buy from insurance companies. Therefore, the premium you may pay for critical illness or medical insurance riders with a life insurance policy also qualifies for tax benefit under the same section. This provision makes it even more beneficial to utilize the section’s deduction on your existing life insurance policies.
Tax Benefits on a Multi-Year Health Insurance Policy: If you are looking to purchase multi-year health insurance plans, then you cannot make use of the tax deductions on a pro-rata basis for a specified number of years, according to the term or tenure of the policy that you have opted for. For example, if you had purchased a 3-year health insurance policy for Rs. 30,000, you will not be eligible for Rs 10,000 tax credit for the next 3 years even though you have bought the plan for many years in one shot.
As mentioned above, insurance is the best instrument to create a better future for yourself and your family members. But with proper planning, you can make sure that this investment is also a worthy one and helps in saving taxes as well. So devote time to picking the right health insurance plan and enjoy the benefits for years to come.