Health insurance is an important policy to manage the health care cost. At the same time, it is also a great way to get tax benefits.
A person or a family may receive a considerable tax advantage under section 80D of the Income Tax Act of 1961. Section 80D of the act provides a way to get maximum benefits of health insurance premiums in tax savings.
Health Insurance Tax Benefits
Medical insurance tax benefits are available for the people who buy a health insurance policy. The buyers may receive health insurance tax benefits under section 80D of the Income Tax Act of 1961 for purchasing health insurance policies. This section allows people to claim the deduction on the amount they pay for their policy. This encourages people to buy more policies and secure their families and themselves against unexpected medical events.
A health insurance policy is a financial partner of the policy buyer. It also helps the buyer to avoid tax liabilities and maintain good health. Every person who buys a health coverage policy may claim a tax deduction.
Types of Health Cover Policies
Let us discuss the types of health cover policies that are allowed for tax deduction under section 80D of the Income Tax Act of 1961.
Individual Health Cover Policy
This type of policy covers only one person. A person may buy a health cover policy for himself. The amount he pays to buy the health cover policy is eligible for deduction under section 80D of the act.
Let us discuss this with an example.
Rohan is a person who buys a health cover that covers him against an unexpected event. The amount he paid to buy the policy is eligible for tax deduction. Therefore, he may exclude such an amount from the taxable income and pay his tax.
Family Floater Health Cover
A family floater is another type of health cover that offers coverage to the entire family. A person may buy family floater insurance in order to cover his entire family against medical emergencies. The amount that a person pays to buy such cover is eligible for tax deduction.
Let us understand with an example.
Aman purchased a family floater health cover that offers coverage to his entire family. This includes his wife, son and daughter. The amount he pays to buy such a policy shall be eligible for a tax deduction. It means that Aman may deduct this amount from the taxable income while paying the income tax.
Senior Citizen Health Cover
These kinds of plans are specifically made for people who are senior citizens (60 or above 60 years old). The amount paid on such a policy is eligible for tax deduction from the taxable income.
Let us discuss it with another example.
Mr and Mrs Verma purchased a senior health cover policy. The amount they pay to buy the policy shall be eligible for a higher deduction as compared to other health covers.
Critical Illness Cover
This is another type of policy which is eligible for tax deduction. A person buys such a policy for a specific disease that may cause his life. The amount he shall pay on the policy shall be eligible for tax deduction under section 80D of the act.
Let us discuss this with an example.
Amar purchased critical illness cover, likely to offer coverage against cancer and heart ailments. The amount he pays to buy the policy shall be eligible for tax deduction under section 80D of the act.
Preventive Health Check-up Plans
One may find many health covers that offer coverage for preventive health check-ups. In addition, such separate plans are also available for people. The amount paid on such a plan shall be eligible for tax deduction.
Deduction Allowed Under Section 80D
Here are the expenses that can be deducted from the taxable income under section 80D.
- The medical cover amount that a person pays for self and family.
- Medical expenses incurred for senior citizens of a family.
Here are the people upon whom a person or HUF taxpayer may claim a tax deduction for the amount he pays to buy the policy
- Self
- Spouse
- Dependent children
- Parents
Also Read: What are the different types of Health Insurance?
Medical Expenses Deduction for Senior Citizens
Section 80D of the act is a discounting tool for senior citizens. It helps provide healthcare facilities to elder people. They do not need to worry about the funds in retirement. It also offers tax relief for many medical expenses. This includes hospitalization and doctor's consultations.
Let us discuss how the deduction works under section 80D of the act.
Individual and Families
- Eligibility: The wife, children, and the person himself are eligible for a tax deduction.
- Deduction: Rs 50,000 is the maximum deduction allowed for such people.
- Example: Rahul is an employee in a firm. He purchased a health cover that covers his wife, children, and himself. He paid Rs 20,000 to purchase the policy. He may claim a deduction of Rs 20,000 from the taxable income.
Parents (Below 60 years old)
- Eligibility: Parents, children, wife, and the person himself may claim a tax deduction on the amount that the policy buyer pays.
- Maximum deduction: He may claim a maximum deduction of amount Rs 50,000.
- Example: Aman is a person who supports his parents who are below 60 years old. He pays health Rs 60,000 health insurance premium for his parents, and family (wife, and children). The total deduction of Rs 50,000 is allowed. However, he pays Rs 60,000. Therefore, he may claim Rs 50,000 as a deduction from the taxable income.
Senior Citizen Parents (60 or above 60 years old)
- Eligibility: The wife, parents, children, and the person himself are eligible for tax deduction under this category.
- Maximum deduction: The policy buyer may claim a maximum deduction of Rs 75,000.
- Example: Aman's parents are 65 years old. He pays Rs 30,000 for his family and Rs 30,000 for his parents. Aman can claim a Rs. 55,000 deduction under section 80D of the act. Rs. 25,000 for his family and Rs 30,000 for his parents.
Modes of Payment Eligible for Tax Deduction
Here are the modes of payment that a policy buyer should use to avail of health insurance tax benefits under section 80D of the act.
- Cheque: A policy buyer may avail of health insurance tax benefits if he makes the payment via cheque. This payment is qualified as it is traceable.
- Digital Transition: Online transfer of money is also eligible for tax deduction under section 80D of the act. The policy buyer may use this means of payment to pay the premium and claim the tax deduction.
- Bank draft: A Bank draft is one of the modes of money transfer that is eligible for tax deduction.
Read More: What is a Pre-existing Condition in Health Insurance?
The process to Claim Health Insurance Tax Benefits Under Section 80D
A person may claim health insurance tax benefits under section 80D of the act while filing the ITR (Income Tax Return) for a financial year. Here are the steps that he may follow to get the medical insurance tax benefits.
The person or taxpayer needs to select 80D under the deduction column when filing the ITR. This is the first step to claim the health insurance tax benefits for the premium paid by the policy buyer.
He needs to choose the criteria in which he wishes to claim the deduction. This is the next step towards claiming the tax deduction benefits. Here are the criteria that he may choose from.
- Self + Parents
- Self (60 or above 60 years) and family
- Self and family
- Self, family, and parents
- Self, family, and parents (60 or above 60 years old)
- Self (60 or above 60 years old, family, and parents (60 or above 60 years old)
The taxpayer also needs to attach the supporting documents (the receipt of the premium that the policy buyer pays). This is important to claim health insurance tax benefits. This helps the income tax department to assess the documents and verify if the person is eligible for health insurance tax benefits.
Things to Remember While Claiming Health Insurance Tax Benefits
Availing of health insurance tax benefits is beneficial for policy buyers and families. However, the policy buyer needs to remember the following while applying for tax benefits under section 80D of the act.
1. Premium
The policy buyer must ensure he has paid the premium through non-cash modes. This includes cheques, bank drafts, digital transactions, etc. The payment of the policy in cash may not qualify for the tax benefits. Therefore, he must pay the premium via cheque or digital transaction. It helps him to keep a record of the transactions. This also avoids delays that may be taken to prove the payment details to the income tax department.
2. Policy Detail
He must keep the policy details of his health insurance policy. This includes the policy number, payment of insurance, and coverage details. These documents are important while filing the income tax returns. The taxpayer needs to attach these documents while claiming the health insurance tax benefits.
3. Details of Dependent
The policy buyer must provide accurate details of the dependents who are beneficiaries of the health insurance policy. This includes dependent wife/ husband, dependent children, and dependent parents. The deduction limits are different for every beneficiary of the health insurance policy. There is a different limit for children and parents. It entirely depends on the age of the people.
4. Health Check-up Record
It is also important for the policy buyer to keep the health check-up record if he wishes to claim the deduction for the preventive health check-ups. He must keep the bills and receipt of the expenses incurred. He may need these documents to support his statement during filing the Income Tax Return.
5. Age
The policy buyer must note the age of his parents. The insurance company offers different deduction limits for the parents. For example, the deduction limit for below 60 years old people is lower as compared to the deduction for people 60 or above 60 years old. The policy buyer must ensure that he claims the appropriate deduction based on the age of his parents.
6. Renewals
The policy buyer must renew his policy before the end of the policy term. It is important to maintain continuous health coverage. He also must ensure that he pays the premium timely and updates his policy details regularly in order to avoid any issues in the future.
7. Check Updates Regularly
The policy buyer must check the tax laws regularly. He must check if the tax rates are increased or decreased. The laws may change. So, he must be familiar with the recent changes in laws.
8. Contact Tax Professionals
The policy buyer must approach the tax professional in case of a complex financial situation. He must seek the advice of a professional in such cases.
Important Points to Remember
Health insurance tax benefits are allowed under section 80D of the Income Tax Act. The premium paid for self, parents, children, and wife are eligible for tax deduction.
- The tax deduction limits depend on the age of the person.
- The policy buyer must keep the bills and receipt of the premium he has paid. He may not be able to claim the health insurance tax benefits in the absence of such documents.
- The taxpayer may claim the deductions under both sections 80C and 80D of the Income Tax Act.
- The policy buyer must pay the premium online to avoid any delays in returns.
Benefits of Health Insurance Policy
Here are the benefits of the health insurance policy.
- The health insurance policy offers financial help when the patient visits the doctor. The policy buyer does not need to pay any money to the doctor or hospital. The insurance company shall be responsible for paying the bill of the hospital.
- The policy makes the cost of medicines less when the policy buyer buys the medicine. It helps to save the money to buy important drugs.
- The policy pays the medical bill when the policy buyer visits the hospital. This helps him save money from the hospital charges.
- The policy helps the policy buyer to visit good doctors. This helps him get the treatment he wants.
Conclusion
Health insurance is a very important tool for a person. He offers his coverage against unexpected medical emergencies. He may pay the premium and claim the health insurance tax benefits. There are different criteria defined to claim health insurance tax benefits. A person may understand such criteria and claim the tax benefits on the premium he pays.
