Learn about Health Insurance Tax Benefits

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Medical emergencies always take us by surprise. It is always better to be safe than sorry, and it is no different when it comes to medical insurance. 

The majority of the population in India is not covered under health insurance and depends on their savings or borrowing in times of medical emergencies. A must in your investment portfolio, the government encourages everyone to buy medical insurance and allows you to avail tax deductions on it under Section 80D.

What is Section 80D?

Every individual or HUF can claim a deduction from their total income for medical insurance premiums paid in any given year under section 80D. This deduction is also available for top-up health plans and critical illness plans.

The deduction benefit is available not only for a health insurance plan for self but one can also take the advantage of buying the policy to cover spouse, or your dependent children or parent. 

The best part is that it is over and above the deductions claimed under section 80C.

Who is eligible for deduction under Section 80D? 

Deduction for medical insurance premiums as well as medical expenses for senior citizens is allowed to the Individual or HUF category of taxpayers only.

Individual or HUF taxpayers, insurance can be availed for :

  • Self 
  • Spouse 
  • Dependant children 
  • Dependent parents

 Any other entity cannot claim this deduction, For example, a Company or a firm cannot claim deduction under this section. 

Payments eligible as deduction under section 80D

An individual or HUF can claim deduction under section 80D for the below-mentioned payments:

  • A medical insurance premium paid for self, spouse, children or dependent parents in any mode other than cash.
  • Expenditure incurred on the account of preventive health check-up 
  • Medical expenditure incurred on the health of senior citizen (aged 60 years or above) who is not covered under any health insurance scheme.
  • The contribution made to the Central government health scheme or any scheme as notified by the government.

Deduction available under Section 80D

The amount of deduction allowed under section 80Dm is Rs 25000 in a financial year. In the case of senior citizens, the deduction limit allowed is Rs. 50,000. 

The below table captures the amount of deduction currently available FY 2020-21 and FY 2019-20 to an individual taxpayer under various scenarios:

ScenarioPremium paid (Rs) Deduction under 80D (Rs)
Self, family, childrenParents
Individuals and parents below 60 years25,00025,00050,000
Individual and family below 60 years but parents above 60 years25,00050,00075,000
Both individual, family, and parents above 60 years50,00050,0001,00,000
Members of HUF25,00025,00025,000
Non-resident individual25,00025,00025,000

Individual: 

  • An individual can claim a deduction up to Rs 25,000 for the insurance of self, spouse, and dependent children. 
  • An additional deduction for the insurance of parents is available to the extent of Rs 25,000 if they are less than 60 years of age, or Rs 50,000 (as per the Budget 2018) if your parents are aged above 60. 
  • If both the taxpayer and the parent whom the medical covers have been taken for are aged more than 60 years, the maximum deduction that can be availed under this section is to the extent of Rs 1,00,000.
  • Note:, Senior citizen includes very senior citizen above 60 years of age

HUF

  • HUF can claim a deduction under section 80D for a mediclaim taken for any of the members of the HUF. 
  • This deduction will be Rs 25,000 if the member insured is less than 60 years, and will be Rs 30,000 (increased to Rs 50,000 in Budget 2018) if the insured is 60 years of age or more.

Example: 

Rohan is aged 45 years, and his father is aged 75 years. Rohan has taken a medical cover for himself and his father for which he pays insurance premium of Rs 30,000 and Rs 35,000 respectively. 

What would be the maximum amount he can claim by way of a deduction under Section 80D? 

Ans: Rohan can claim up to Rs 25,000, for the premium paid on his policy. As for the policy taken for his father, who is a senior citizen, Rohan can claim up to Rs.50,000.

 In the given case, the deduction is Rs 25,000 and Rs 35,000. Therefore, the total deduction that he can claim for the year is Rs 60,000.

What is Preventive Health Check-up under 80D?

The government introduced preventive health checkup deduction in 2013-14 to encourage citizens from being more proactive towards health. The idea of preventive health check-ups is to identify the occurrence of any illness and mitigate risk factors at an early stage through frequent health checkups.

Section 80D includes a deduction of Rs 5000 for any payments made towards preventive health check-ups. This deduction will be within the overall limit of Rs 25,000/ Rs 50,000 as the case may be.

This deduction can also be claimed either by the individual for himself, spouse, dependent children, or parents. The payment for preventive health check-ups can be made in cash.

For Example:

Rahul has paid a health insurance premium of Rs 23,000 for the insurance of the health of his wife and dependent children in the financial year 2019-20. He also got a health check-up done for himself and paid Rs 5,000. 

Rahul can claim a maximum deduction of Rs 25,000 under Section 80D of the Income Tax Act. Rs 23,000 has been allowed towards insurance premium paid, and Rs 2,000 has been allowed for a health check-up. The deduction towards preventive health check-ups has been restricted to Rs 2,000 as the overall deduction cannot exceed Rs 25,000 in this case.

Single Premium Health Insurance Policies

Budget 2018 has introduced a new provision for claiming a deduction with regards to single premium health insurance policies. Under the new provision, where a taxpayer has made a lumpsum premium payment in a single year for a policy valid for more than one year, he can claim a deduction equal to the appropriate fraction of the amount, under Section 80D. 

The appropriate fraction is arrived at, by dividing the lump sum premium paid, by the number of years of the policy. However, this would again be subject to the limits of Rs 25,000 of Rs 50,000 as the case may be.

How to buy medical Insurance?

There are many factors to be considered before purchasing health insurance. Here are some points to be considered from the standpoint of claiming deduction under section 80D and other general clauses before buying any medical insurance:

  • Contribution towards health insurance plans has to be made to a scheme as specified by the Central Government or any other insurer and approved by IRDA i.e Insurance Regulatory and Development Authority.
  • Please make sure that payment of insurance premium is done by any mode other than cash. Also, the policy should have a cashless claim settlement process.
  • Hospital room rent and many other expenditures are allowed on a fixed percentage of the sum insured. Hence choosing a sufficient sum insured is an important factor before purchasing health insurance.
  • Please carefully consider the clause relating to pre and post-hospitalization expenses. Many policies cover all the expenses incurred before 30 days and after 90 days of hospitalization.
  • Many insurance providers have started including alternative therapies like Ayurveda, Yoga, Naturopathy, Unani, Siddha and Homeopathy (abbreviated as AYUSH). This can be important to many and should be duly considered.
  • A lot of other expenses get incurred in regard to lab tests, specialized doctors visit etc. A lot of policies now provide daily cash limit as reimbursement for such additional expenses.
  • Many insurance companies provide yearly health checkups as added benefits. Health check-ups include various tests and evaluation of health which is very essential and helps in the early diagnosis of any illness.
  • Please consider the clause of no-claim guaranteed cumulative bonus every year. Many insurance providers offer a no-claim bonus which is added to your sum insured for all the number of years in which no claim has been made by the policyholder. This increases the sum insured by giving additional security. However please note that all the related charges linked to the sum assured would be excluding this bonus amount.
  • Post pandemic, most of the insurance providers are offering COVID cover, however, necessary details like coverage of COVID, the cap on expenses, daily cash benefits, miscellaneous charges like PPE kits if covered or not should be known before purchasing the insurance. 

Points to be remembered at the time of purchase of medical insurance for claiming 80D deduction

  • A medical insurance premium paid for brother, sister, grandparents, aunts, uncles or any other relative cannot be claimed as a deduction for taking tax benefit.
  • Premium paid on behalf of working children cannot be taken for tax benefit.
  • In the case of part payment by you and a parent, both of you can claim a deduction to the extent paid by each.
  • The deduction has to be taken without showing the Service Tax and Cess portion from the premium amount.
  • Group Health Insurance premium provided by the company is not eligible for deduction.

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