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Tax Benefits on Mediclaim / Health Insurance Premium

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Tax benefit of health insurance and Medical Health check-ups

The primary purpose that individuals and families purchase Health Insurance is to cover the cost of medical care in case of hospitalization following an accident or sickness. While this should ideally be the specific reason for buying Health Insurance, unfortunately many Indian still look at insurance policies as a Tax Saving tool (be it life or health insurance). This is because the Income Tax Act of India allows for a Income Tax benefit for payment of health insurance premium, which can be claimed while filing income tax return. One must note that this tax benefit under section 80D is allowed over and above the deduction limit of ₹1,50,000 available under section 80C of Income tax act 1961.
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Tax benefit of health insurance and Medical Health check-ups

What is Section 80D?

On this page, we will focus reviewing the provisions of section 80D of the Income Tax Act, to know how much tax deduction is allowed for health insurance premium payments and when such tax benefits can be taken by an Individual. Tax deduction under section 80D is allowed only to an Individual or HUF (Hindu Undivided Family), a Resident or Non-resident citizen of India. In terms of section 80D, tax deduction is allowed for the premium amount paid as insurance premium to cover the health of the individual, his/her spouse, children and parents. It does not matter whether children or parents are dependent on you or not. Under this section, health insurance premiums, contributions to the Central Government Health Scheme, and preventive health check-up can be claimed for a tax deduction.

Mode of Payment allowed for Premium paid for Health Insurance

It is important to note that to claim the income tax benefit, the individual is required to pay the health insurance premium out of his taxable income during the financial year by any mode other than cash. This means, if you are paying your health insurance premium in cash, you will not be allowed to claims an income tax exemption under section 80D for the premiums paid. One can pay your premium amount by cheque, draft, Internet banking or even by credit card to get tax advantages under section 80D. This restriction (payment of cash) however is not restricted to Medical Health check ups, where cash can be the mode of payment for the same and this will still be eligible to be claimed as a deduction.

Health Insurance – Dual Benefits?

Health insurance serves a dual purpose, it not only protects you and your family from the financial loss due to unforeseen medical emergencies, it also saves your hard-earned money through Income Tax deductions at the end of every financial year. With the rise in health care costs and medical inflation, medical insurance should definitely considered as an investment rather than an expense/cost. The Indian government is also simultaneously encouraging all citizens to opt for health insurance that allows savings as well as provides protection. The premium paid against a health insurance policy is exempted from taxation. Hence it effectively:
  • Protects yourself and your family during a medical emergency by offering coverage for hospitalisation expenses and
  • Saves money for you through the income tax deductions under section 80D

What is the Quantum of Tax Deduction for Health Insurance premium?

The Income Tax Benefit under section 80D is available based on the age of the insured individual. The benefit can be claimed under the following categories:
  • If age of the Individual / Spouse or Dependent children is below 60 years, maximum deduction that can be availed is ₹25,000 a year.
  • Further the individual is also allowed to claim tax benefits towards the health insurance premium paid for his/her parents. Again based on the age of the individual’s parents, whether dependent or not is eligible for tax deduction subject to the maximum amount of ₹50,000 a year, if your parent’s age is > 60 (senior citizen).
  • If however, the age of the parent is < 60 years, the Income Tax Act allows a deduction of maximum amount of ₹25,000 a year.
  • Tax deduction allowed to an individual under section 80D shall be the aggregate of the above two limits. Hence if the individual is paying premium for both himself and his parent, he becomes eligible for an allowed deduction of ₹50000 (₹25,000+₹25,000). Similarly, if the individual is > 60 years and is paying health insurance premium for parents, the maximum tax deduction allowed will be ₹100,000 (₹50,000+₹50,000 as both are senior citizen).
  • Tax Deduction on Preventive Health Check-ups is limited to ₹5,000 but over and above the current ceiling of ₹25,000 / ₹50,000 as per one’s eligibility for both parents and the individual’s family.
  • According to the new rules introduced in Budget 2018, if you have made a lump-sum premium payment in a single year for a health policy valid for more than one year, you can claim a deduction up to ₹50,000.

Table showing Maximum Amount of Tax Deduction U/S 80D

Insured’s Details IT Deduction under section 80D Exemption for Preventive Health Check Up Total Eligible Tax Deduction
Self + Family ₹25,000 ₹5,000 ₹30,000
Self + Family + Dependent Parents < 60 years ₹25,000 + ₹25,000 ₹5,000 ₹55,000
Self + Family + Dependent Parents> 60 years ₹25,000 + ₹50,000 ₹5,000 ₹80,000
Self (>60 years) + Family + Dependent Parents> 60 years ₹50,000 + ₹50,000 ₹5,000 ₹1,05,000
Tax Planning using Health Insurance – as the table above suggests, it is important to be prudent about one’s finances by using the available benefits of Income Tax deductions while protecting oneself and one’s family with health insurance. As an individual one can save upto ₹30,000 per year on tax and if you include your parents, it could potentially be a tax saving upto ₹80,000 per year. So how does one plan for their finances with Health Insurance? Here are a few straightforward ways to plan your Health insurance effectively:
  • Understand the section 80D and its benefits first – many persons are not aware of this section and it’s benefits. If one does go through this section, you will be aware that as an individual (<60 years), you can avail benefits upto ₹30,000 inclusive of a Preventive Health check up. Hence invest in a Health insurance policy for you and your family with a premium of atleast ₹25,000 and also buy a Health Check up policy. If one buys a policy with a premium of ₹18,000, then one is losing the benefit under section 80D and will be able to save less tax.
  • Both Spouses are Earning, Both can claim deductions - If both the individual and their spouse are earning members, then both can claim a tax deduction by buying health insurance under their respective income tax returns. This can lower the taxable income for the family as a whole because of double benefit upto ₹50,000 (assuming both are <60 years). So purchase health insurance plans by splitting the purchase between both spouses.
  • Buy a Health Insurance Policy for your Parents – Even if your parents are not financially dependent on you, ensure they are covered sufficiently under Health Insurance by investing in a comprehensive insurance plan. You must understand that for parents (assuming they are > 60 years), they are eligible for a deduction upto ₹55,000, inclusive of a Health check up. This will save tax on your hard earned money and provide protection to your parents.
  • Invest in Preventive Health Check up – One case avail a benefit of upto ₹5,000 by purchasing this for you and your parents. Please note that once can avail a benefit of a maximum of ₹5,000 if you are insuring yourself, your family and your parents. Again there is a dual purpose of this investment. One, you can genuinely assess the individual health status of each member of your family on an annual basis and secondly, you can save some money also while filing your taxes.
  • Don’t Pay Cash for your insurance premium – Under the section 80D, one must be aware that if the Health insurance premium is paid in cash, then the same cannot be claimed as a deduction while filing one’s returns. Ensure payment through a cheque, demand draft or NEFT. You will lose this opportunity to save money by paying premium in cash.
  • Health Insurance for Very Senior Citizens – This section also provides coverage towards medical expenses of very senior citizens (> 80 years of age) who are not covered under any type of health insurance policy. One is eligible to claim a deduction up to ₹30,000 for each financial year.
So while the primary objective of availing Health Insurance should always be protection during a health emergency, one must also be aware of the available benefits that can be accrued by way of income tax deductions as well.

Things to Be Noted Before Filing for Tax Return

There are certain important aspects to be kept in mind while filing one’s income tax returns with respect to Health Insurance:
  • First and foremost, one should invest in the most comprehensive health insurance plan for oneself and one’s family – if one can afford, ensure the premium paid is above the eligibility limits under section 80D to avail of the complete benefit available.
  • Secondly, it’s necessary to make the payment of the premium through net banking, credit cards, cheques or other payment mechanisms to be eligible for the deduction. Any payment in cash not accepted for a tax deduction.
  • Thirdly, be aware of the family members that can be insured from your end to claim exemption. Premium paid for siblings, grandparents, paternal, and maternal relatives cannot be claimed under the tax deduction act.
  • Fourthly – If you are an older parent, premium paid on behalf of your working children cannot consider for tax benefit.
  • Finally, group health insurance premium paid by the company on behalf of the employees covered under the group is not eligible for deduction.
So keep these aspects in mind while filing your IT returns every year.

Section 80D has been evolved into including a few more sections to serve specific insurance needs which are eligible for Income Tax deductions under the respective sections:
  • Section 80DD / 80 U (Treatment of a Dependent with Disability) - In case an individual is taking care of the treatment and bearing expenses of an immediate family member with a disability (if the dependent is your spouse, parents, children, or siblings), you are eligible for a deduction up to ₹75,000/₹1,25,000 (depending on the level of disability) for each year. These expenses can include medical treatment expenses, training, rehabilitation, nursing care.
  • Section 80DDB (Treatment of Critical Illnesses) - This deduction can be claimed by an individual for medical expenses incurred for himself/herself or for a dependant, which includes dependant as spouse, children, parents and siblings of the individual. In case of an HUF, it can be claimed for a member of the HUF. This is from just protecting you against critical diseases with deductions from ₹40,000 upto ₹100,000 depending on the age of the dependent. It is mandatory to attach a certificate issued by the treating doctor while filing one’s income tax return. The deduction under this section is available only for expenditures incurred for medical treatment of specified diseases mentioned in the Rule - 11DD in the Income Tax Rules. These diseases, as per current laws, are as follows:
    • Malignant Cancers
    • Full-Blown Acquired Immuno-Deficiency Syndrome (AIDS)
    • Chronic Renal failure
    • Hematological disorders –
    • Hemophilia and
    • Thalassaemia
    • In case of the below mentioned Neurological diseases where the disability level has been certified to be of 40% and above
    • Dementia
    • Dystonia Musculorum Deformans
    • Motor Neuron Disease
    • Ataxia
    • Chorea
    • Hemiballismus
    • Aphasia
    • Parkinsons Disease
Section of Income Tax Act Family members/parents < 60 years Family members/parents > 60 years
Section 80DD / Section 80U * ₹75,000 or ₹125,000(depending on disability percentage) ₹75,000 or ₹125,000(depending on disability percentage)
Section 80DDB ₹40,000 ₹100,000
* - These sections do not take Age into consideration

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