Reasons you could lose tax benefits on health insurance

Health insurance policies offer tax benefit of Rs 25,000 per year (Rs 50,000 for senior citizens) under Section 80D of the Income Tax Act. To avail this tax benefit, policyholders have to make sure that they do not violate the conditions of tax exemption knowingly or unknowingly, or else they may face the prospect of losing the benefit. So, what are the circumstances that can cause a policyholder to lose tax exemption on a health insurance policy? We enumerate some of these below:

Non-submission of proof of premium payment: If you do not submit the proof of payment of premium of your health insurance policy to your employer, you may lose the benefit of claiming tax deduction. Hence, submit the proof to your employer before the end of the financial year to avail the tax exemption benefit.

Non-renewal of policy: If you do not pay your renewal premium and renew your policy every year before the due date, you will lose the benefit of tax deduction. So, it is imperative that you pay your premium before the due date and renew your policy to avoid losing tax benefit.

Paying premium for multi-year policy in advance: If you pay the premium for two or three years in advance for a multi-year policy and if the total amount paid is in excess of Rs 25,000, then you cannot claim tax deduction for the amount paid in excess of Rs 25,000. So, if you pay a premium of Rs 45,000 for a three-year health insurance policy, the maximum deduction allowed would be Rs 25,000 and you will not be allowed to claim tax benefit for the balance amount of Rs 20,000.

Paying premium for financially independent children or for non-permitted relations: You can pay premium for your dependent children and claim tax rebate on the premium.However, if you pay premium for your financially independent children, such premium would not qualify for deduction. Also, if you pay premium for your in-laws, grandparents or grandchildren, you cannot claim tax deduction for the premium paid. The tax deduction is allowed only for a policy taken for self, spouse, dependent children and parents.