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How To Save Income Tax with Health Insurance Policy in India
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How To Save Income Tax with Health Insurance?

When you start earning there are a lot of hidden dreams and goals that you wish to fulfill with your income. However, financial experts recommend that you should, first of all, secure your and your family’s health and then start saving for your goals. A health insurance policy is something that has all benefits and no losses. When you invest in a medical insurance policy you strengthen your financial ability towards any unforeseen situation, in addition, you also make yourself eligible for tax deductions under section 80D of the Income Tax Act of India. Nevertheless, you should be well aware of all the terms and conditions before making your investment.

What is Section 80D of Income Tax?

Section 80D of the Income Tax Act, 1961 helps you to save tax with health insurance policies. Under this section, an individual can avail tax deductions up to INR 50,000 on the premiums made for health insurance policies taken for self-and/or family. Under section 80D, individuals avail themselves of much more benefits than those offered under section 80C of the Income Tax Act.

Who can avail of benefits under Section 80D?

The deductions and other benefits offered under section 80D can only be availed by individual taxpayers and HUF category taxpayers. The premium paid for the medical insurance of the following family members are allowed:

  • Self
  • Spouse
  • Dependent Parents
  • Dependent Children

 

Some policies cover other relationships in family floater health plans. It is recommended that you go through the policy documents in detail.

What tax deductions are available under Section 80D?

Look at the table below to understand the deductions available for a taxpayer under section 80D for a financial year and see how to save tax with health insurance:

Category Amount of premium paid (in INR) Deductions available under Section 80D (in INR)
Self, family, and children Parents
Individuals and their parents who are below the age of 60 years 25,000 25,000 50,000
Individuals and their families who are below the age of 60 years, but parents are above 60 years old 25,000 50,000 75,000
The policyholder, as well as his parents, are over the age of 60 years 50,000 50,000 1 Lakh
Non-resident individuals 25,000 25,000 25,000
Hindu Undivided Family (HUF) 25,000 25,000 25,000

How to Save Tax legally with Health Insurance Policy?

The following examples will help us in understanding more about Section 80D and how it can help save tax with health insurance :

Example 1:

Anshuman is a 30-year-old male who is currently working for a software company. He has recently invested in medical insurance both for himself and his mother who is 62 years old. The premium amounts paid by Anshuman for the policy are INR 30,000 and INR 40,000 respectively. Calculate the amount of deduction he can avail of under section 80D?

Solution: Anshuman can claim a benefit of up to INR 25,000 for his premium and INR 50,000 for his mother’s premium. In this scenario, the deductions made would be INR 25,000 for Anshuman and INR 40,000 for his mother. Therefore, the total amount deducted shall be INR 65,000.

Example 2:

Mr. Mohan Verma is a 61-year-old professor and he had bought a medical insurance policy for himself and his father, a few years ago. He pays a premium of INR 45,000 for himself as well as INR 40,000 for his 89-year-old father. Calculate the amount of deduction he can avail of under section 80D?

Solution:  Mr. Verma and his father both fall under the category of senior citizens and therefore, both of them can avail of a deduction of up to INR 50,000 on their premiums. In the given scenario, the deductions made would be INR 45,000 and INR 40,000 for Mr. Verma and his father respectively. Therefore, the total deductions made are INR 85,000.

Benefits of Health Check-Ups Under Section 80D

In order to motivate more and more people to be cautious and alert towards their physical health, the government proposed deductions on the preventive health check-ups in the financial year 2013-14. It is a well-established fact that even a severe illness diagnosed in the early stages makes recovery much easier.

Under Section 80D, you can avail a deduction of INR 5,000 for any expenses towards health check-ups that are preventive in nature. There is an upper limit of INR 25,000 or INR 50,000. This deduction can be made for the policyholder himself, his dependent parents, and dependent children.

Things to Remember when trying to save tax with health insurance:

There are certain points that you should take care of before buying a health insurance policy and claiming a deduction under 80D:

  1. You are only eligible for tax deductions if the premiums paid for the medical policy are for self, spouse, children, and parents. Premiums paid for any other relative shall not be considered for deductions.
  2. Medical insurance premiums if paid on behalf of the financially independent children will not be eligible for deductions.
  3. If you and your parents are sharing the premium to be paid, there is a provision for both of you to claim a deduction to the extent paid.
  4. The deduction has to be made without adding the service tax and cess portion of the payment amount.
  5. Group health insurance policies are not eligible for deductions under section 80D.
  6. Make sure you do not pay the premiums through cash otherwise you will not be able to claim the deductions.

 

Health insurance plans come up with a whole lot of benefits for the insured individuals including financial coverage for self and family, domiciliary hospitalization coverage, cashless benefits, and health checkups. In addition, tax deductions offered to ease premium payment for these medical insurance plans, make them more attractive and desirable.

Saving tax and availing tax benefits is essential but you should not buy a health insurance policy just to claim those deductions. The first rule of buying health insurance is estimating your requirements and then searching for a suitable policy, but if you just look at it as a tax-saving tool you might miss on choosing the best-suited plan for yourself that can ultimately cost you higher in difficult situations.

Under section 80D of the Income Tax Act, 1961 you can save tax with health insurance policies which indeed is a bundle of benefits for all. Therefore, select the right medical insurance policy for yourself and your family, look out for suitable premiums, claim the tax deductions under section 80D and take care of the important points to avoid confusion at the end. This way you can save tax with health insurance policies and take care of your health and wealth at the same time.

FAQs

How much I can save tax in health insurance policy?

Any policyholder is allowed to claim a tax deduction of up to Rs 25,000 per financial year on medical insurance premiums under section 80d of the Income Tax Act.

What is the maximum limit for Section 80D 2020-21?

The maximum limit for Section 80D 2020-21 is Rs. 25,000. The individual policyholder can claim a maximum deduction of Rs 25,000 for insurance premiums for self, spouse and dependent children.

Is health insurance exempted from income tax?

Premium paid for a health insurance plan is deductible from the taxable income. The maximum limit for the deductible amount is Rs. 25,000 and can be extended for up to Rs. 50,000 for senior citizens (with effect from 1 April, 2018) as per section 80d of the Income Tax Act.

Is any proof required for Section 80D?

There is no proof or documentation needed to avail of section 80D deductions.

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