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What You Need To Know About Health Insurance Tax Benefits

In the last quarter of every financial year, one realizes health insurance benefits are more than just financial coverage. Apart from providing financial protection for healthcare-related expenses, health insurance also provides tax benefits. A little bit of understanding about how health insurance tax benefits and how it works can help you make the most of your health insurance policies during the time of filing annual income tax. However, here is a caveat. The tax benefits are incidental and the choice of health insurance must never be made purely with the tax exemptions in mind.

Health insurance policyholders can avail of tax deductions on the premium paid under Section 80D of the Income Tax Act. Taxpayers can avail of deductions under Sepolictions 80DD, 80DD, 80DDB, and 80U, which are related to health conditions but they do not necessarily pertain to health insurance. They are more of health related expenses that the government exempts for tax purposes in specific cases. The tax benefits under Section 80D can be availed if you are paying health insurance premiums on:

Let’s understand tax benefits under each of these sections.

 

Health Insurance tax benefits under Section 80D of the Income Tax Act

Under Section 80D, an individual or a HUF (Hindu Undivided Family) can avail of tax deductions. The premium paid towards a health insurance policy can be deducted from the total taxable income. 

Tax deductions under different situations according to age:

  • Individual or all family members under 60 years: Up to Rs 25,000 can be deducted from the taxable income. This Rs 25,000 should have been paid as premium or towards preventive health check-up.
  • Individual, all family members and parents under 60 years: Up to Rs 50,000 can be deducted from the taxable income. (Rs 25,000 towards self and family insurance + Rs 25,000 towards parents insurance)
  • If the eldest member in the family is under 60 years and parents are above 60 years: Up to Rs 75,000 can be deducted from the taxable income. (Rs 25,000 towards self and family insurance + Rs 50,000 towards parents insurance)
  • Self or eldest member in the family is over 60 years and parents are over 60 years: Up to Rs 1 lakh can be deducted from the taxable income. (Rs 50,000 towards self and family insurance + Rs 50,000 towards parents insurance)
  • Preventive health check-up expenses can be claimed for tax benefits subject to a ceiling of Rs 5000.

 

How to claim tax deductions under Section 80D?

Health insurance companies provide a payment receipt when a policyholder makes payment of premium. The policyholder has to submit the receipt and the copy of the policy at the time of income tax filing. Normally, if you are employed, these documents have to be submitted to your HR department by January of the fiscal year. If you fail to do so, the tax exemption will not be considered by your HR but you can subsequently claim refund while filing your tax returns.

If a policyholder has paid a premium for multiple years at one go, the tax benefits are accordingly calculated for the number of years paid for and apportioned to the relevant year for which tax returns are being filed.

 

Tax deductions for married couples

Let’s understand how couples can gain the maximum health insurance tax benefits. Many married couples who have a family floater insurance plan, ask this question: Can we split the premium amount and can we both avail of tax benefits?

Experts say: Insurers would have to split the premium when issuing the policy. There are no rules or guidelines for whether or not couples can split insurance premiums to avail of tax benefits. However, most insurers may not be able to issue two separate premium receipts or tax certificates for one policy. Different insurers may have different guidelines for such a requirement from couples. Insurers would have to split the premium at the time of issuing the policy.

Another way in which couples can gain tax benefits through health insurance is via health insurance for parents. An individual can only receive tax benefits against premium paid for self, spouse, children and parents; not towards premium paid for in-laws. In case, both husband and wife want to avail of tax benefits, they could both do so by way of their parents’ health insurance policies.

 

Conditions under which one cannot avail of health insurance tax benefits:

  • When the premium paid is towards the health insurance policy of extended family such as in-laws, and uncles and aunts, in certain cases.
  • Individuals who have a group health insurance provided by the employer cannot avail of any tax benefits on the policy. In this case, the employer who pays the premium can avail of tax benefits.
  • If an individual is paying the premium on behalf of a working family member, e.g. children, sibling or parents, no tax benefits can be available. 
  • Payments made in cash are not eligible for tax benefits. Only payments made through net banking, cheque, debit or credit card are eligible for tax benefits. It has to be made through banking channels with an audit trail.
  • Only insurance plans bought from insurers who are registered with the IRDAI are entitled to tax benefits. Hence, it is important to buy health insurance from credible companies that are registered with IRDAI. 

 

Tax benefits under Section 80DD

This has nothing to do with health insurance premiums paid. Under Section 80DD, a taxpayer can avail of tax deduction towards treatment expenses incurred for a disabled dependent. The disabled could be a spouse, children or parents who are dependent on the taxpayer.

The maximum deduction under Section 80DD is Rs 75,000, which should be incurred towards medical treatments, rehabilitation, nursing and caretaking. Cases with severe disability are eligible for enhanced tax benefit of up to Rs 1.25 lakh per year. 

 

Tax benefits under Section 80DDB

This has nothing to do with health insurance premiums paid. Section 80DDB lists specific ailments for which an individual is eligible for tax deduction. An individual can avail of tax benefits under this section for medical expenses towards the specified diseases for self or a family member. 

Conditions under which one can avail of tax deductions under Section 80DDB:

  • Individuals and HUF who are residents of India can claim deductions.
  • To avail this benefit, the taxpayer has to provide a certificate of the disease. The diseases listed under this section are: dementia, ataxia, aphasia, Parkinson’s, motor neuron disease, cancers, thalassemia and AIDS among few other diseases.
  • For individuals and family members under the age of 65 years, the limit of deductions is Rs 40,000 paid towards the treatment of the disease.
  • For senior citizens and super senior citizens, this amount can be up to Rs 1 lakh.

 

Deduction under Section 80U

  • Section 80U offers tax deduction benefits to persons with disability. 
  • The person must have a disability certificate in order to avail of tax benefits.
  • The person with a minimum 40% disability can avail of tax deduction.
  • Persons with severe disability – 80%, can avail of additional tax deductions.
  • The disabilities specified under Section 80U are: blindness, low vision, hearing impairment, locomotors disability, mental retardation, autism, mental illness, leprosy and cerebral palsy.
  • Under section 80U, individuals suffering from a disability can claim tax deductions for self only and not on behalf of others.

 

Differences 

80D

80DD

80DDB

80U

Health insurance premium for self, family and parents

Maintenance and medical treatment of disabled dependant

Treatment of self and dependent

Individuals suffering from a disability can claim for tax deductions for self only.

Up to Rs 25,000 for individuals below 60 years and up to Rs 50,000 for senior citizens.

Up to Rs 1.25 lakh for severe disability and Rs 75,000 for non-severe disability

Up to Rs 1 lakh for senior citizens (60 years and above) and Rs 40,000 for those aged below 60 years

Up to Rs 1.25 lakh for severe disability and Rs 75,000 for non-severe disability

 

To sum it up

Financial experts often advise that one should not buy health insurance only for the purpose of saving tax. Health insurance plans for self and family are beneficial during medical emergencies, and they also offer tax benefits. The reasons to invest in health insurance are more than just the tax benefits it provides.


FAQs: Health Insurance Tax Benefits

Do all types of health insurance plans provide tax benefits?

All types of health insurance plans do not provide tax benefits. Personal health insurance, family floater, health insurance for senior citizens, and critical insurance plans, among others, provide tax benefits to the policyholder. A person insured under a group health insurance that is provided by employers is not eligible for any tax deductions, since the premiums are not paid by the insured.

How do I claim a tax deduction for health insurance premium paid?

Health insurance companies provide a receipt for the payment of premiums. Some health insurance companies provide a tax certificate, too. These documents and the policy copy can be submitted while filing income tax for the purpose of availing of tax benefit. Nowadays, the insurance company allows you to download the certificate from the website itself.

Under which section of the Income Tax Act can one avail of tax benefits for health insurance?

Health insurance policyholders can avail of tax deduction on health insurance premium under Section 80D of the Income Tax Act. Sections 80DD and 80DDB also provide tax benefits for specified expenses related to healthcare.

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