Health Insurance for Tax Benefit
When the changes in the tax regime occur, it encourages insurance penetration in India. The country’s insurance section now accepts 100% FDI (foreign direct investments), up from 74%. Health insurance provides a financial safety net and ensures quality healthcare access without imposing a financial burden on you. Financial security is not the only benefit of health insurance. This is because, under Section 80D of the Income Tax Act, 196, you can get significant tax benefits too.
Health insurance tax benefits offered under this section are essential for maximising your tax savings. It provides relief on the premiums paid for health insurance policies as well as on certain medical expenses. Understanding the 80D deduction benefits is essential for tax planning, whether you are a salaried individual or a business owner. Let’s first explore the essential aspects of deductions under this section and then go through the smart ways to use health insurance for tax benefits.
Understand the Deduction Limits
Under Section 80D, a taxpayer is eligible for a tax deduction on premiums paid to medical insurance for oneself, spouse, parents, and dependent children. HUFs and individuals can claim this deduction. Also, the medical expenses incurred by senior citizens are covered. The deduction limits vary depending on the age of the insured.
For Individuals Aged Under 60 Years:
- Premium amount for self, spouse, and dependent children: Max. ₹25,000 per annum.
- Additional premium for parents aged below 60 years: Max. ₹25,000 per annum.
- Total allowed deduction: ₹50,000 per annum.
For Individuals Aged Below 60 Years and Parents Aged Over 60 Years:
- Premium amount for self, spouse, and dependent children: Max. ₹25,000 per annum
- Additional premium for parents aged above 60 years: Max. ₹50,000 per annum
- Total allowed deduction: ₹75,000 per annum
For Individuals And Parents Both Aged Over 60 Years:
- Premium amount for self, spouse, and dependent children: Max. ₹50,000 per annum
- Additional premium for parents who are senior citizens: Max. ₹50,000 per annum
- Total deduction allowed: ₹100,000 per annum
Use Preventive Health Check-up Benefits
This section supports a preventive health check-up deduction with an amount up to ₹5,000. Contrasting insurance premium payments, the 80D deduction under preventive health check-up is allowed, although the payment is made in cash.
Consider Critical Illness & Top-Up Plans
You can get extra financial protection in addition to qualifying for the 80D benefits if you invest in top-up or critical illness riders. These plans cover expensive treatments like cardiac diseases, cancer, and organ transplants.
Get Familiar With Exclusions
Apart from the benefits offered, you must also know the exclusions to avoid confusion:
- The cash payment of any premium for a health insurance policy is not qualified for deduction. The deduction is only eligible if it is paid through a digital payment system or a cheque.
- In certain cases, an insured person’s employer pays the premium for a group health insurance policy that covers the individual and his/her family. Deduction to the specific amount paid can’t be claimed in such cases. You can claim the tax benefit only for the premium you pay.
- The deductions are eligible only for premiums paid for yourself, your spouse, your children, and your parents. The premiums you pay for your grandparents, uncles, aunts, siblings, relatives, or employed children are not qualified for tax benefits.
Note: The Section 80D deductions are not available under the new tax regime presented in the Income Tax Act (Section 115BAC). The new tax regime emphasises providing reduced income tax rates but doesn’t allow for most exemptions and deductions, including those covered under 80D.
Tips to Consider When Utilising Health Insurance for Tax Benefits
The essential tips to smartly use your health insurance plan for tax benefits are outlined below:
- All insurance policies don’t qualify for the Section 80D tax deductions. You must opt for any one of the following to get tax benefits:
- Individual or Family Health Insurance
- Critical Illness Plans
- Senior Citizen Policies
- Top-Up & Super Top-Up Policies (excluding life insurance policies since they don’t qualify under Section 80D)
- Make sure premiums for the whole family are paid in a single financial year to boost deductions.
- Stay abreast of the policy terms and renewals. You must renew your insurance policy in a timely manner to get tax benefits continuously. Also, check for policy upgrade features like OPD coverage, cashless hospitalisation, and wellness programs.
- Ensure premium payments are made through digital modes (like UPI, bank transfers, debit/credit card) or cheques; otherwise, you are ineligible for Section 80D deductions. Cash payments are only allowed for preventive health check-ups.
- Plan for multi-year premium payments, i.e., paying for a 3-year policy at once to optimise tax savings.
Conclusion
Knowing all the aspects of your health insurance policy and the Section 80D will help you plan for tax benefits smartly. You must be familiar with the payment modes, eligibility criteria, deduction limits, and exclusions to avoid hassles in the future. The understanding of these aspects will help you boost tax-saving benefits while simultaneously promising financial support for medical expenses.
