India’s health insurance industry has advanced rapidly over the last few years. In 2021, approximately 514 million people in India were covered under a health insurance policy (Source: Statista). Health insurance offers not only financial support but also tremendous mental support in the face of a medical contingency.
A health insurance policy protects you against unforeseen medical expenses and offers benefits such as uninterrupted medical care and better financial stability during a medical emergency. In addition, it promises significant benefits in the form of tax deductions.
You enjoy tax benefits when purchasing medical insurance not only for yourself but also for your spouse, children, and parents. While purchasing a health plan for your elderly parents make sure to get coverage for the widest range of medical conditions. It will also get you higher tax benefits.
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What does Section 80D of the Income Tax Act, 1961 signify?
All Indian citizens are eligible for health insurance tax benefits on premiums in the form of a deduction from their annual taxable income. The top-up health insurance policies and critical illness plans/riders are also eligible for a deduction under Section 80D of the Indian Tax Tax Act.
In simple terms, Section 80D allows you to reduce your tax burden if you invest in your and your family’s health planning. It offers a double advantage—financial security during a medical emergency and monetary savings as tax benefits. Therefore, health insurance premiums can be a crucial component of your financial and tax planning.
Who is eligible for health benefits under Section 80D?
If you are unsure whether you are eligible to claim tax benefits under Section 80D or not, then here are some points to help you understand it better. Whether you are an individual taxpayer or a HUF, you can claim health insurance tax benefits under Section 80D of the Income Tax Act for:
- Yourself
- Spouse
- Children
- Parents (dependent or not)
According to the Income Tax Act, a business or an organisation is not qualified to claim tax benefits under Section 80D.
Payments eligible for deductions under Section 80D
Under Section 80D of the Income Tax Act of India, an individual or HUF in India can claim tax benefits for medical insurance payments made toward:
- The premium for yourself, your spouse, your children, your parents, or any other dependents.
- Any costs associated with preventive health checkups of any kind.
- Medical costs incurred for a senior citizen who is not protected by a valid health insurance plan or scheme.
- Contributions to the Central Government Health Programs or any other similar schemes notified by the Government of India.
Deductions permitted under Section 80D of the Income Tax Act, 1961
For a fiscal year, the maximum amount of deduction permitted under Section 80D is Rs 25,000. Whereas, in the case of senior citizens the maximum deduction amount is Rs 50,000. The information mentioned below states the maximum amount of deduction available for FY 2021-2022 and 2020-2021 to an individual under different scenarios:
- A maximum amount of Rs 25,000 is allowed for the self, spouse, and dependent children.
- A maximum of Rs 25,000 for non-residential individuals.
- A maximum deduction of up to Rs 50,000 is allowed for self, parents, and senior citizens over the age of 60 years.
Restriction on cash payments
Only when paying for health policy by non-cash methods such as online banking, cheques, demand drafts, and debit or credit cards, can individuals enjoy tax benefits. Preventive health care checkups are exempt from this result; in such cases, you can still avail of the tax deductions.
Multi-year health insurance plan tax benefits
In a multi-year health plan, the premium amount remains the same for the whole policy period. Hence, you do not have to worry about a spike in premium rates during policy renewals. People who prefer to purchase multi-year health plans can now take advantage of prorated tax benefits in addition to discounts on premiums. According to recent industry reports, over 23% of policyholders are now going for multi-year health plans in India (Source: Opportunity India).
You can take advantage of tax benefits proportionately throughout the years for which multi-year health policies have been obtained. For instance, if you paid a Rs 30,000 premium for a three-year health insurance policy, you are eligible for an exemption of Rs 10,000 each year.
Critical points to remember
To qualify for tax benefits under Section 80D of the Income Tax Act, 1961 for medical insurance policies, you must take into account the following factors:
- Ensure that you have thoroughly read your health insurance policy’s terms and conditions regarding tax exemptions.
- To qualify for tax deductions, avoid making the premiums payments for health insurance policies in cash.
- If you purchase a health insurance policy for both you and your parents, and you are all senior citizens, the maximum amount of deduction permitted under Section 80D is Rs 1 lakh.
- Tax deductions under Sec 80C of up to Rs 1.5 lakh can be combined with Section 80D benefits.
Conclusion
Overall, there is no denying that family health insurance plans are among the most beneficial ways for saving taxes and safeguarding your savings from being blown away by medical costs.
Additionally, they assist you in lowering your tax liabilities by enabling you to take advantage of Section 80D of the Income Tax Act, 1961 and avail deductions up to Rs 1 lakh from your taxable income. Therefore, invest in health insurance today to secure your and your family’s future.