How to take advantage of your health insurance policy benefits through tax-saving investments
Authored by Sanil Basutkar, Co-Founder of Healthysure
Health insurance is an essential investment for every individual and family, as it safeguards them from the financial burden of medical emergencies. In addition to providing coverage for medical expenses, health insurance policies in India also offer tax benefits. By understanding the tax-saving benefits of health insurance policies, policyholders can maximize their financial savings and plan their finances more effectively. If citizens' annual income falls within the taxable bracket, it is crucial for them to possess a health insurance policy, as this allows them to claim income tax exemptions up to a specified limit.
In India, health insurance policies provide tax benefits under Section 80D of the Income Tax Act, 1961. The premiums paid for health insurance policies are eligible for deductions from the taxable income, thereby reducing the tax liability. The maximum deduction amount depends on various factors, including the policyholder's age and the type of policy.
Who is eligible?
Under Section 80D, every individual or Hindu Undivided Family (HUF) can claim a deduction for their health insurance, which is deducted from their total income for the year. This benefit also extends to policies purchased to cover a spouse, dependent children, or parents.
How much benefit can be claimed?
The following table summarizes the amount of benefit that can be claimed.
|
Case
|
Health Insurance Premium Paid
|
Section 80D
Deduction
|
|
Self, Spouse & Children
|
Parents
|
|
Individual and family and parents below 60 years
|
25,000
|
25,000
|
50,000
|
|
Individual and family below 60 years but parents above 60 years
|
25,000
|
50,000
|
75,000
|
|
Both individual/family and parents above 60 years
|
50,000
|
50,000
|
1,00,000
|
|
Members of HUF below 60 years
|
25,000
|
25,000
|
25,000
|
|
Members of HUF where a member is above 60 years
|
50,000
|
50,000
|
50,000
|
At the time of buying policy, the insurer should share an 80D certificate or tax certificate that can be submitted while filing to claim tax benefits. However, it must be noted that the premium should not be paid in cash (to claim deduction in ITR).
Further, the receipt of the premium paid by the individual along with a copy of the policy could be required to be submitted for claiming deduction.
Other tax deductions for treatment of certain diseases
There are other deductions available that can help plan taxes around healthcare expenditure. As per Section 80DDB, the expenses incurred by an individual on the treatment of some specific diseases are tax-deductible for the individual as well as family including dependent parents. These diseases include cancer (malignant), AIDS, Parkinson's disease, neurological disorders, haemophilia, chronic renal failure, and thalassemia. For people aged below 60 years, the upper limit for tax benefit is Rs 40,000 and for those aged above 60 years, it is of Rs 1 lakh.
Are these tax deductions available in the new tax regime?
The new personal income tax regime for individual taxpayers was introduced in Budget 2020. Effective from FY 2020-21, taxpayers can choose between two income tax regimes - existing/old tax regime and the new tax regime. By opting for the old tax regime, the taxpayer can continue to avail existing deductions such as section 80C, section 80D etc. of the Income-tax Act, 1961 and tax exemptions like house rent allowance, LTC Cash Voucher Scheme etc. Although the new revised tax regime offers lower tax rates as compared to the old tax regime, by opting for the new regime the taxpayer will have to forgo most tax deductions and exemptions that are available under the existing regime.
An individual will not be able to claim the deduction of section 80D if they opt for the new income tax regime; i.e., this deduction can be claimed only if you opt for the old tax regime in a financial year.