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How to Claim Tax Benefits on Health Insurance Premium?

Health Insurance is intrinsic to financial planning in modern times due to the rapid exponential rise in healthcare cost in India. Boasting one of the best healthcare facilities in the world, any medical emergency needing hospitalization is certain to burn a hole in one's pocket, apart from the emotional trauma one has to suffer. Health Insurance is just the tool that helps overcome the sudden financial crisis, as one is prepared to counter medical emergencies, as and when it emerges.

But there is more!

Almost all health insurance plans come with an alluring benefit that is tax benefits.

Section 80D of the Income Tax Act of India allows for availing tax benefits for the money spent on maintaining your health and health insurance plan. The deductions that are allowed under this section are

  • Money spent as premium for health insurance policy
  • Money spent on regular health check-ups or preventive healthcare

Tax Benefits on Health Insurance Premium

The premium paid by an individual for health insurance plans decreases the taxable income and hence the tax liability. Individuals who pay their health insurance premiums and are under the age of 60 years can avail of a medical insurance tax exemption of up to Rs 25,000 per year. If they are above 60 years of age, they are eligible for claim a deduction of up to Rs 50,000 with senior citizen health insurance. If an individual pays the premium for the health insurance of parents less than 60 years of age, they can claim a further exemption of up to Rs 25,000 annually and Rs 50,000 if their parents fall under the category of senior citizen health insurance plan.

However, premiums paid via internet banking, credit card, debit card, cheque or draft are only eligible for tax exemption, where payment made through cash remains ineligible.

Let’s have a glance at the tax benefit one can claim under health insurance:

Category

Deduction

Premium paid for

Deduction

Health checkup up

Total Exemption

You and your family are below 60 years

Rs 25,000

Parents below 60 years

Rs 25,000

Rs 5,000

Rs 55,000

You and your family

Rs 25,000

Senior citizen parents

Rs 50,000

Rs 5,000

Rs. 80,000

You(Senior citizen) and your family

Rs 50,000

Senior citizen parents

Rs 50,000

Rs 5,000

Rs.1,05,000


Income Tax Act section 80D provides tax deductions on premiums paid towards buying or renewing an existing health insurance policy. A taxpayer can claim the tax benefits only for those premiums paid during a particular financial year. Tax deductions are valid only for the present term and not for past or future payments of premiums.

The deductions u/s 80D can be claimed by an individual as well as the Hindu Undivided Family. The deduction limit under section 80D is not a clear-cut value. The deduction under section 80D is flexible and allows the taxpayers to include their families, also parents who may or may not be senior citizens. There are many ways to spread the benefits of this deduction to cover three generations of family members. If thought well, young taxpayers can include their parents into this insurance plan, who are not qualified for health insurance plans.

The combinations are:

Self

A

Self + spouse

B

Self + spouse + dependent children

C

Self + spouse + dependent children + dependent parents

D

Health Insurance Tax Benefit Types

Tax benefits are offered to plans like family floater and mediclaim but also plans like a daily hospital cash plan, or a critical illness plan allows medical insurance tax exemption

  • Life Insurance: Many times, it is believed that tax benefits are available only for insurance plans bought from the health insurance companies. But health insurance plans purchased from life insurance companies are also eligible for tax benefits. The premium paid towards critical illness insurances or medical insurers also provides tax benefits.
  • Medical checkups: An individual insurer can avail of a benefit of Rs 5,000 from health checkups within a maximum limit of Rs 25,000 or Rs 30,000 depending on the insurance plan.
  • Medical Treatment for Specific Ailments: Neurological diseases, 40% or more disability, AIDS, cancer, hemophilia, chronic renal failure, Parkinson’s disease, which can be covered under specific ailments that can have a tax benefit.

How to Claim Tax Benefits?

An individual has to initially check from the income tax department website the amount of deduction available under section 80D for that particular year in which he/she has paid his premiums of the health insurance plan.

The documents required to claim the tax benefits are:

  • The premium payment receipt
  • Policy copy which shows the names of the family members, their relation, age

Tax benefits on health insurance can be claimed at the time of filing income tax returns.

  • When an individual fills the ITR form, there is a deductions column. There one has to select 80D, which claims for health insurance plans.
  • A person needs to choose for whom he is claiming the tax benefit from the options provided.

Things to Consider while Claiming Tax Benefits

There are certain things that a health insurance plan owner needs to consider while reaping health insurance tax benefits:

  • Apart from the premium of health insurance policy, an individual can also claim a deduction for preventive health checkups under section 80D. A maximum deduction of up to Rs 5000 can be claimed with a maximum limit of Rs 25,000
  • An individual can also buy a policy for their parents and get an additional deduction on the premium paid. It will benefit both you and your parents
  • A tax benefit is available only on preventive checkups and not on the checkups that are done during the treatment. If you spend Rs 5000 on these tests, you will save a tax of Rs 1500.
  • Payment can be made from any other mode than the cash to avail of the income tax benefits. However, it is always good to keep all the receipts to get the benefit
  • Service tax is charged on every health insurance premium, and this payment is not available for deduction.

Health insurance plans are always beneficial with their different features. It can be considered as a necessity of the hour. One of the benefits is surely income tax reduction, but never buy a health insurance plan just to get the tax benefits. Don’t be underinsured. The tax break is a bonus, of course, and can lead to savings of an individual.

FAQ

Written By: Paisawiki - Updated: 24 July 2020

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