Tax Benefits on a Health Insurance Policy

The premium amount you pay for a health insurance policy is eligible for tax relief as per Section 80D of the Income Tax Act. This tax benefit can be obtained in addition to the health insurance benefits offered by a policy.
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As a responsible person, you should ensure that your family does not suffer if you contract any ailment or diagnosed with a life-threatening disease. Apart from the , health insurance also provide some tax benefits which may work to your advantage.

Tax-Benefits-on-a-Health-Insurance-Policy

Tax Benefits of Health Insurance:

The premium paid by you (policyholder) for your health insurance policy provides the following two benefits:

  • Insurance coverage
  • Tax benefits

As per Section 80D of the Income Tax Act, 1961, the premium may be deducted from your total income. Total income = gross total income (includes income from all heads). Taxable income = gross total income - deductions (under section 80D to 80U).

Section 80D:

As per section 80D, a HUF or an individual can claim deduction for the following:

Section 80D Deduction
  • Non-cash payment of medical/health insurance premium paid by taxpayer (individual/HUF)
  • Contribution by an individual taxpayer to a central government health scheme
  • Sum or amount paid by an individual taxpayer for preventive health check-up
  • Expenses incurred for the upkeep of health of a very senior citizen or keep an insurance for the person in force
A taxpayer can avail of deductions as listed in the table below:
Individual Policy taken in his or her name, spouse, parents and children
HUF Policy taken on behalf of any member
Medical expenditure Allowed for expenses for the upkeep of good health of very senior citizens (residents of India who are eighty years old or above)

Amount of deduction:

The following table shows the amount of deduction for individuals and HUF:

Individual HUF Rs.25,000 (Premium paid or any payment made for preventive health check-up. The payment must be made for the benefit of the taxpayer, his or her spouse and children) Rs.20,000 (Premium paid or any payment made for preventive health check-up. The payment must be made for the benefit of the parents of the taxpayer) Rs.25,000 (contribution to central government health scheme. The payment must be made for the benefit of the taxpayer, his or her spouse and children ) Rs.30,000 Expenditure on the taxpayer’s health, his or her spouse, children or parents Rs.25,000 Rs.30,000 Premium paid or medical expenditure for senior citizen

Section 80DD:

The following table shows the criteria and deduction available for medical expenditure under Section 80DD

Criteria Deduction Amount
Individual/HUF, incurring expenditure on maintenance of dependent with disability (nursing, rehabilitation, Amount paid under any LIC scheme for maintenance) Rs.1,25,000 (if the dependent suffers from severe disability)

Section 80DDB:

Section 80DDB covers deduction vis-a-vis medical expenditure on relative or self to the extent of Rs. 40,000 or the amount incurred by the assesse (whichever is less). Very senior citizens can claim up to Rs 80,000 as deduction while senior citizen can claim up to Rs.60,000 or amount paid (whichever is less).

Section 80U:

Section 80U covers deductions vis-a-vis persons with physical disability. Persons suffering from any form of physical disability such as blindness or even mental retardation can claim Rs. 75,000 (financial year 2015-16) as deduction. Persons suffering from severe disability can claim up to Rs. 1,25,000 as deduction.

Health insurance tax benefits under Section 80D of the I-T Act

Health insurance has become the need of the hour these days due to an increase in lifestyle diseases and the ever-increasing cost of medical treatments. Without a health cover, it is difficult to get timely medical attention with just your hard-earned savings to rely on. Therefore, paying for a suitable health insurance policy has become a necessity now.

The good news is that you can get tax benefits on the premiums you pay for your health cover and that of your parents. In this article, we discuss the importance of health insurance and the full use of Section 80D of the Income Tax Act to get the maximum tax benefits on your health insurance premium.

As per Section 80D of the I-T Act, 1961, you can claim the following tax deductions on health insurance premiums:

  • Rs.25,000 tax deduction on premiums paid for your own health insurance policy.
  • Rs.50,000 tax deduction on health insurance premiums if you are a senior citizen.
  • Additional Rs.25,000 tax deduction if you pay premiums for your parents' health insurance policies.
  • Up to Rs.50,000 tax deduction if your parents are senior citizens i.e. above 60 years of age.

However, you are not eligible for tax deductions on premiums paid for the health insurance policies of your parents-in-law. In such a case, your spouse can pay for his or her parents’ health cover to get tax benefits.

Here is how you and your spouse can benefit from the above-mentioned criteria for tax deductions under Section 80D. If your spouse is an earning member, he or she can pay for his or her parents’ health insurance policies while you pay for your parents’ health cover. Thus, both of you can get a total tax deduction of up to Rs.75,000.

What’s more, if you, your spouse, your parents, and parents-in-law are all senior citizens, then the tax deduction can go up to Rs.1.5 lakh. By this method, not only are you and your dependents insured for medical treatments but also can enjoy tax benefits on the overall family income.

Health insurance tax benefits for married couples

Here is an example of how much tax deduction a married couple who are both breadwinners of the family can get on health insurance premiums if they had a group health insurance for the family (i.e. self, spouse, and children) and a separate policy for their respective parents.

Age Group/family health insurance for self, spouse, and children Premium paid for parents' health cover by husband Premium paid for parents' health cover by wife Overall tax deduction on the family income
Husband, wife, and parents are below 60 years of age Rs.25,000 tax deduction Rs.25,000 tax deduction Rs.25,000 tax deduction Rs.75,000
Husband and wife are below 60 years of age but parents are senior citizens Rs.25,000 tax deduction Rs.25,000 tax deduction Rs.50,000 tax deduction Rs.1 lakh
Husband, wife, and parents are all senior citizens Rs.50,000 tax deduction Rs.50,000 tax deduction Rs.50,000 tax deduction Rs.1.5 lakh

Important points to remember when claiming tax deductions on health insurance premiums

  • Tax deduction can be claimed only if the premiums are paid using any other mode other than cash.
  • In case one of the parents passes away, you can renew the health insurance policy for the remaining parent and still claim tax deductions on premiums paid for one parent. The tax deduction could be the actual premium or Rs.50,000, whichever is lesser.

Things to remember when purchasing a health insurance policy

Purchasing a health insurance policy shouldn’t be solely for tax benefits. Here are some important things to keep in mind when choosing a health cover:

  • Before purchasing a health insurance policy, always compare various policies on a third-party comparison site and choose one that best suits the requirements of self, spouse, children, and parents.
  • For individuals aged 60 years and above, be it self, spouse, or parents, it is advisable to opt for a senior citizen health insurance policy as additional healthcare is required as we age.
  • When choosing sum insured, it is important to take medical inflation into account. Choose a higher sum insured to ensure everyone is adequately covered in the future.
  • If ageing family members or members with critical medical problems are included in a group/family health insurance policy, they are bound to use up a majority of the sum insured, thus, leaving the remaining members insufficiently covered under the policy. Therefore, it is better to insure aged members and members who have larger medical needs under a separate health cover so that everyone will be adequately covered.
  • Look into purchasing add-ons or riders like critical illness cover, maternity cover, hospital cash allowance cover, etc. to get a comprehensive health plan.
  • Choose a health insurance company with a high claim settlement ratio and more number of network hospitals so that you can trust the insurer to settle your claims in a timely manner in your hour of need, be it unplanned or planned hospitalisation.
  • Find out how cashless and reimbursement claims are registered and follow the procedure thoroughly to avoid claim rejection.
  • Always read the policy document carefully before signing it. Go through the inclusions and exclusions mentioned in the policy documents. Check the co-pay clause, room rent charges, grace period, and waiting periods specified in the policy.
  • If you already have a health insurance policy but are dissatisfied with it, then you can opt for health insurance portability, wherein you can port your policy from one insurer to another on the grounds of needing better coverage for reasonable premiums.

Conclusion

A suitable health cover will ensure you and your dependents are taken care of in your hour of need, be it a health check-up or a hospitalisation. You don’t have to deplete your savings on medical treatments when you have a health insurance policy to reimburse your expenses. You can also enjoy significant tax benefits on the premiums paid for the policy.

GST rate of 18% applicable for all financial services effective July 1, 2017.

Disclaimer: Premiums may vary depending upon factors like age, location and prevailing taxes/GST.

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