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health insurance income tax benefits

Learn How to Reduce Income Tax With Health Insurance Online

Could you be paying more tax because you don’t have health insurance? 

Yes, it’s possible that you’re ending up paying more tax because you aren’t making use of the benefits of income tax deductions available from health insurance and claims. While health insurance cannot be bought purely for tax benefits, the tax implications cannot be ignored as they impact the effective costs.

The premium paid on health insurance policies provide tax deduction under Section 80D of the Income Tax Act. Tax deductions under the Income Tax Act are tools that you could use to reduce your tax liability. What this means is; the health insurance premium paid by you will be considered as eligible expenditure and reduce your total taxable income, which is a great value addition for your personal finance planning.

Now, did you know you could save tax as much as up to Rs 1 lakh? You probably didn’t. We’ll tell you how to increase income tax deductions with health insurance and premiums. We’ll answer these questions for you:

  • What are the tax benefits you could avail on health insurance in India?
  • What are the tax benefits under Section 80D?
  • What are the tax benefits under Section 80DDB?
  • What are the tax benefits under Section 80U?
  • How to calculate tax deductions – examples
  • Non eligibility of tax deductions – key points

 

What are the tax benefits on health insurance in India?

The Income Tax Act offers various tax benefits on different expenditures to taxpayers. Expenses on health are one of them. Tax benefits on different kinds of health and medical expenses can help reduce the tax burden of individuals and families considerably. For e.g., insurance premium, medical treatment, medical bills, hospitalization charges and more!

These tax benefits are specified in Section 80D, 80DDB, 80DD, 80C, and 80U. The tax benefits offered under these sections may seem similar, but there are differences. It is essential to understand these key differences. It can help you grasp the nitty-gritty and help you with more tax deductions.

There are limitations to the number of tax benefits one can avail under each section. A lot of it depends on factors such as the kind of illness, the kind of expense, who pays it, the mode of payment and the age.

Are you figuring out how you can save more from tax benefits? Read on. 

Deduction under Section 80D – health insurance 

Key points to know about tax deductions under Section 80D

  • The tax benefits of Section 80D can be availed for individual health insurance policies and family floater only; not for group insurance plans offered by employers.
  •  If you are the medical insurance policyholder, or your spouse, or dependent children, you can avail of tax deductions up to Rs 25000.
  • You can avail of up to Rs 25000 additional tax deductions for your parents if they are below 60 years.
  • If the policyholder is your senior parent/s (above 60 years) or if you are a senior citizen, you can avail of additional tax deductions of up to Rs 50000.
  • You can also avail of additional deductions of up to Rs 5000 towards expenditures due to health check-up for yourself, spouse, children or parents.
  • Non resident Indians, too, can avail tax deductions under Section 80D.
  • This tax deduction benefit is available only if policyholders pay the premium by cheque, online transfer, debit or credit card; not by cash.

 

Tax benefits that can be availed under Section 80D

Detail         Premium paid

Self, spouse, children           Parents

Exemption limit
Individual and parents below 60y 25000 25000 50000
Individual below 60y, parents senior 25000 50000 75000
Individual and parents above 60 50000 50000 100000
Non resident Indian 25000 25000 50000

 

Tax benefits under Section 80DD – maintenance and medical treatment for disabled dependant

Under Section 80DD, a taxpayer can avail of tax deduction towards treatment expenses incurred for a disabled. 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 per financial year, which should be incurred towards medical treatments, rehabilitation, nursing and caretaking. Cases with severe disability are eligible for a tax benefit of up to Rs 1.25 lakh per financial year. 

 

Deduction under Section 80DDB – medical expenditures toward specific illnesses

Key points to know about tax deductions under Section 80DDB:

  • Although taxpayers can avail benefits under Section 80DDB without having a health insurance, it is advisable to buy health insurance, as this section provides benefits only for the diseases specified in it and other medical expenses are not covered in it.
  • Section 80DDB allows benefits of tax deduction only to individuals and HUFs.
  • Tax benefits under this section cannot be availed by non resident Indians.
  • The tax deduction can be availed only by the person who bore the expenses.
  • Tax deductions under section 80DDB can be availed only for medical expenses related to the treatment of illnesses specified in Section 80DDB of the Income Tax. These illnesses are: Neurological diseases, chorea, motor neuron disease, dementia, ataxia, Parkinson’s disease, AIDS, malignant cancer, chronic renal failure, and hematological disorders.
  • Deductions under Section 80DDB can be availed only with prescriptions from verified doctors. Claims can be made only by providing proof of the need of the treatment as well as a proof that shows the treatment was undertaken.

Tax benefits that can be availed under Section 80DDB

AGE AMOUNT
Up to 60 y Up to Rs 40000
Senior citizen (60 to 80 y) Up to Rs 100000
Super senior citizen (80 y and more) Up to Rs 100000

 

Deduction under Section 80U

Key points to know about tax deductions 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, loco motor disability, mental retardation, autism, mental illness, leprosy and cerebral palsy.
  • Under section 80U, individuals suffering from a disability can claim for tax deductions for self only.

 

Disability type Amount
General disability (at least 40%)  Rs 75000
Severe disability (80% and more) Rs 1.25 lakh

 

Differences of tax benefits under different sections

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

By now you may have understood the different ways in which you can avail of tax benefits under different sections of the Income Tax Act. Now let’s try to understand these with the help of possible scenarios – some common, other not so common.

 

Scenario 1

Rajat has an individual health insurance policy for which he pays an annual premium of Rs 10000. Rajat’s father has a health insurance policy for which he (Rajat) pays an annual premium of Rs 15000. In one financial year, Rajat’s expenses towards preventive health check-up amounted to Rs 5000 for his father.

Here’s how Rajat can calculate the deductions.

(Premiums Rs 10000 + Rs 15000) + (Health check-up Rs 5000)

Total = Rs 30000

While calculating taxable income, Rajat can deduct Rs 30000 from his total income.

For e.g. if his total annual income was Rs 10 lakh, he can subtract Rs 30000 from it as the exemption amount. Hence, he will be taxed only on Rs 970,000. 

 

Scenario 2

Rahul has a family floater plan for himself, his wife, daughter and his 70-year-old father who is a senior citizen. He spends Rs 25000 as annual premium. He receives tax benefits on this premium paid. Rahul’s father recently got injured and Rahul incurred medical expenditure of Rs 5000. Rahul wanted to claim tax deductions for the medical expenditure, but he couldn’t.

Why? You might wonder.

That is because the key condition to claim the deduction for medical expenditures is that the senior citizen should not be covered under any health insurance policy. Hence, in this case, Rahul can claim tax deduction benefits of only Rs 25,000. However, if the injury entailed hospitalization, Rahul can claim medical insurance for his father.

 

Scenario 3

Gaurav has a non-severe disability. His mother, too, is disabled and dependent on him. Gaurav incurs maintenance and medical treatment expenses for both, his mother and himself. He can thus claim tax benefits under Section 80U for expenses towards self and 80DD for expenses towards his mother.

 

Limits on tax deduction on health insurance

It is essential to know when you are not eligible for tax deductions on health insurance. This information will also come handy at the time of buying a health insurance plan.

  • There are no tax deduction benefits in the case of group health insurance policies that are offered by employers. In such a case, the company offering the policy to employees will be entitled to the tax benefits.
  • If you are paying the premium on behalf of a working family member, for e.g., siblings or children, you are not entitled to any tax benefits.
  • You cannot avail of any tax benefits if the payment towards the premium has been made by cash. Hence, make sure you pay through net banking, cheque, debit or credit card, as a proof of premium payment has to be furnished in order to avail of tax benefit. Basically, there should be a bank audit trail to the transaction.
  • Certain policies do not have the provision of coverage if the treatments are received by the policyholder outside India. It is essential to check whether this provision is mentioned in the policy. It is necessary to take international health cover while travelling abroad.
  • 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. You can check the list on the IRDAI website.
  • It is essential to keep all documents – medical bills, hospital bills, doctor’s prescriptions, and related documents including reports, as proof of expenditure.
  • You cannot avail of tax deduction benefits for paying premiums for your in-laws.

 

To sum it up

Now you know why health insurance should be considered a part of your financial planning. It is one of the cornerstones of sound financial health. You surely do not want your emergency medical expenses to make a mess of your financial plan. Like it is said, you need good health to enjoy wealth; both health and wealth go hand in hand. In the long run, health insurance can save a huge amount of medical bills.

Still have questions regarding how you can save more tax from health insurance? Or are you looking at the best health insurance plans that also help you save tax? We can help you out with your queries. 

 

FAQs: Health Insurance

Will I get tax benefits if I buy health insurance for my parents?

Yes, of course. Premiums paid by an individual for health insurance policies for self, spouse, children, and parents qualifies for tax deduction under Section 80D of the Income Tax Act.

Here’s what you should know:
The tax benefits of Section 80D can be availed for individual health insurance policies and family floater only; not for group insurance plans offered by employers.
If the medical insurance policyholder is you, your spouse, or dependent children, you can avail of tax deductions up to Rs 25000.
You can avail of up to Rs 25000 additional tax deductions for your parents if they are below 60 years.
If the policyholder is your senior parent/s (above 60 years) or if you are a senior citizen, you can avail of additional tax deductions of up to Rs 50000.
You can also avail of additional deductions of up to Rs 5000 towards expenditures due to health check-up for yourself, spouse, children or parents.
Amount of tax deduction:
Parents (up to 60 years): Up to Rs 25000
Parents (60 years and above): Rs 50000

Do NRIs get tax benefits for buying health insurance in India?

Yes, NRIs do get tax deduction benefits up to Rs 25000 under Section 80D of the Income Tax Act.

How do I claim tax deduction from health insurance?

Taxpayers are eligible for tax deductions towards the premium paid for health insurance and expenses towards preventive health check-ups. When a policyholder pays premium, the insurance company provides a certificate of premium paid. This certificate can be submitted while filing of annual income tax to the Income Tax Department of India. The amount paid towards health insurance premiums will be deducted from the total taxable income.

E.g. if a policyholder has paid a premium of Rs 20,000 towards health insurance, Rs 20,000 will be deducted from their total income. Tax will be charged on the remaining taxable income.

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