When you buy a health insurance policy, you get to reap dual benefits. First and foremost, it secures you against unpredictable medical emergencies. Second, it allows you to avail tax exemption annually. As you do prioritize your health over money, tax exemption is a plus that you get to avail as an add-on to your health insurance policy.
Under Section 80D of the Income Tax Act, 1961, you can avail an annual tax exemption of up to Rs 25,000, based on the annual premium paid for an individual or a family floater health insurance policy for you, your spouse and children, or the entire family as a whole. In addition to that, you are eligible for an annual deduction of up to Rs 25,000 more if you are paying the health insurance premium for any of your parents as well.
The tax deduction limit increases from Rs 25,000 to Rs 30,000, in a case, when the policyholder is a senior citizen (above 60 years of age). In other words, under Section 80D of the Income Tax Act, the total annual tax exemption you can claim goes up to Rs 55,000 (i.e. Rs 25,000 for you, your spouse and your dependent children plus Rs 30,000 for your dependent parents who are above 60 years of age).
Note: There are no tax deductions if your employer or the government funds your insurance premium. This also means that to avail the tax benefit of your health insurance policy, you should be paying the premium from your own pocket. It is the mandatory requirement that the insured bears the cost of the insurance in order to claim the tax benefit.
Tax Planning to Save Tax is the key to savings. It helps you to save your hard money that later helps you to accomplish your financial goals.
The following is the list of a few things that you should know before you claim tax benefits under section 80D:
1. Tax deductions.
Aside from the medical insurance policy premium, Under Section 80D, you are eligible to claim a maximum deduction of Rs 5,000 for the precautionary/preventive medical check-up of you and your family. An uninsured super citizen (a person more than 80 years of age) can claim up to Rs 30,000 as a deduction for their medical expenses.
2. Additional tax deduction.
When you pay health insurance policy premium for your parents, an additional tax deduction on the premium paid can be availed. It safeguards your parents’ health and prevents them to be negligent towards their medical emergency due to any financial crisis. In return, you get a reward in the form of tax deduction.
If your parents (either mother or father, or both) are senior citizens, then you can claim a tax deduction of up to Rs 30,000. For precautionary/preventive health checkups, tax deductions are available too. You can’t claim more that Rs 5,000. If your parents are not dependent on you, in that scenario, they can claim tax benefits for themselves. Under Section 80D, you can pay for your parents’ benefits, irrespective of them dependent on you or not.
3. Better to be safe than sorry.
Expenditure on preventive health care can be compensated to a certain extent. Expenditure on preventive diseases offers you tax benefits. So you can enjoy the dual benefit, only if the diseases are preventive. If you fall in the category of highest tax category and you spend up to Rs 5,000 on the medical tests, then you can save Rs 1,500 on tax.
4. Mode of payment matters
In order to avail the benefit of the tax deduction, the mode of payment has to be any other mode than cash. It can be via a credit/debit card, NEFT, Internet Banking etc. It is a compulsion; otherwise, you can’t claim the tax benefits offered by the mediclaim policies. When it comes to the mode of payment for preventive medical checkups, the payment made in cash is acceptable.
Also, keep those bill receipts handy, as they can be very useful when you need to submit investment/medical bills for income tax return with your employer.
5. Service tax and mediclaim premium.
As you know, a service charge is levied on mediclaim insurance premium. However, that payment doesn’t fall into the category of a tax deduction. As per experts, Under Section 80D, service tax should also be considered as a tax deduction.
Always buy a health insurance policy that offers you an adequate coverage in terms of health in specific. In order to save tax, people buy a mediclaim policy and they end up being underinsured. Therefore, consider tax exemption a secondary benefit of a health insurance or mediclaim policy.