Last Updated on May 25, 2022 by Neera Bhardwaj
Even as technology pervades the medical space for deep procedures and care, the cost of hospitalization and medical attention is getting more expensive by the day. A health insurance policy proves it is worth in a medical crisis when you incur a sizeable hospital bill. Not only does a policy cover your medical bills but it also spares your finances from the additional strain.
Moreover, your health insurance policy gives you tax benefits on the premiums paid.
Let’s explore how the tax angle of health insurance works. But first, let’s take a quick look at what Section 80D of the Income Tax Act entails.
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Section 80D of the Income Tax Act, 1961
Section 80D of the Income Tax Act defines the income tax deduction available on the premium paid towards health insurance coverage of yourself and your family. The section is contained in Chapter VI A of the Income Tax Act, 1961. Section 80D allows you to claim tax deductions on premiums paid towards all types of health insurance plans subscribed for the self, your parents, your children, and your spouse.
Tax benefits on health insurance premium
The premium you pay towards a health insurance policy is allowed as a deduction from your taxable income, under Section 80D of the Income Tax Act. The deduction is allowed up to Rs. 25,000 if your age is below 60 yrs. However, if you are aged 60 yrs and above, the deduction limit increases to Rs. 50,000.
For example, say you are 35 yrs old and buy a health insurance policy with a premium of Rs.20,000. You would be able to claim this premium of Rs. 20,000 as a deduction from your taxable income. If, however, the premium was Rs. 30,000, the deduction would be available only up to a maximum limit of Rs. 25,000.
You can claim a maximum deduction of up to Rs.1 lakh on health insurance premiums under Section 80D. Now, if you are in the 30% tax bracket, paying a premium of Rs.1 lakh would help you save upto Rs. 30,000 in taxes. That’s a win-win with coverage and tax savings.
Additional tax benefits for parents’ health insurance
If you buy a health insurance policy for your parents and pay the premium, you can claim an additional deduction on the premiums paid for their coverage. The deduction limit is Rs. 25,000 if your parents are below 60 yrs of age. If, however, you have senior citizen parents aged 60 yrs and above, you can claim a deduction of up to Rs. 50,000.
Consider the following example to understand the total deduction that you get under Section 80D:
Suppose you buy a policy covering yourself and your spouse. The premium for the policy is Rs. 27,000. You buy another policy covering your senior citizen parents. The premium for this policy is Rs. 35,000. The aggregate deduction that you can claim would be as follows:
|Premium paid for self and spouse||Rs. 27,000|
|Deduction available on the premium paid for self and spouse||Rs. 25,000|
|Premium paid for senior citizen parents||Rs. 35,000|
|Deduction available for the premium paid for parents||Rs. 35,000 (up to Rs. 50,000 since parents are aged above 60 yrs)|
|Aggregate deduction available||Rs. 25,000 + Rs. 35,000= Rs. 60,000|
So, if you insure your parents and pay the premium for their coverage, you can avail an additional deduction. This deduction, combined with the deduction available on your policy, entitles you to claim a maximum deduction of up to Rs. 1 lakh. Here’s how:
|Instances||Deduction available (for self)||Additional deduction available (for parents)||Total deduction available|
|When you are below 60 yrs and pay premiums for yourself and your family||Up to Rs. 25,000||NA||Up to Rs. 25,000|
|When you are above 60 yrs and pay premiums for yourself and your family||Up to Rs. 50,000||NA||Up to Rs. 50,000|
|When you pay premiums for yourself, your family and parents. (You and your parents are both aged below 60 yrs)||Up to Rs. 25,000||Up to Rs. 25,000||Up to Rs. 50,000|
|When you pay premiums for yourself, your family and parents. (You are aged below 60 yrs, but your parents are senior citizens)||Up to Rs. 25,000||Up to Rs. 50,000||Up to Rs. 75,000|
|When you pay premiums for yourself, your family and parents. (You and your parents are both aged 60 yrs and above)||Up to Rs. 50,000||Up to Rs. 50,000||Up to Rs. 1 lakh|
Conditions for claiming the deduction
Here are some conditions that you should remember when you are claiming a deduction on your health insurance premium.
Deduction would be available in the year when the premium is paid. If you buy a multi-year policy and pay the aggregate premium at once, you would get the deduction only in the financial year when you purchased the policy. In the next financial years, the deduction would not be allowed even though the policy would allow coverage.
For example, say you buy a three year policy in December 2021 and pay a premium of Rs. 45,000. In this case, you would get a deduction in FY 2021-2022. Even though the policy covers you till December 2024, the deduction for the premium would not be available in FY 2022-2023 or 2023-2024.
The premium paid for yourself, your spouse and your dependent children would qualify under the deduction limit of Rs. 25,000 or Rs. 50,000.
The additional deduction for your parents’ policy would be allowed only if you buy the policy for your parents. If you cover your parents-in-law, the additional deduction would not be available to you. The additional deduction for parents’ policy is available even if your parents are not financially dependent on you.
Enhancing the 80D benefit
Section 80D allows you to avail of deductions up to Rs. 1 lakh if you pay the premiums for your whole family, including your parents. But did you know that your 80D benefit could be enhanced by another Rs. 50,000?
Wondering how? Simple – buying health insurance for your parents-in-law.
If your spouse is an earning member and a taxpayer, they can buy a policy on his/her parents. This would give your spouse a deduction under Section 80D. If your parents-in-law are senior citizens, your spouse can claim a deduction of up to Rs.50,000 on her taxable income.
So, while you enjoy a deduction of up to Rs. 1 lakh on insuring your family members, your spouse’s additional deduction of up to Rs. 50,000 enhances the 80D deduction limit for your family.
The bottom line
A health insurance policy has become a necessity in recent times as medical inflation rises steeply. With a health insurance policy, you can secure your finances and access quality healthcare. Under Section 80D, you can claim a deduction up to Rs. 1 lakh, provided you meet the eligibility and conditions.
So, invest in a suitable health plan and claim the premiums as a tax-deductible expense in your income tax returns.