Tax saving is a key factor that influences the investment behaviour of most earning individuals in India. One such investment instrument is health insurance because it caters to an important part of our life - health. Taking care of one’s health is a costly affair, whether it’s maintaining a healthy lifestyle or getting proper treatments from good hospitals. In addition, the health insurance premiums are also applicable for tax-saving under Section 80D of the Income Tax Act 1961. These provisions are provided for individual health insurance, Arogya Sanjeevani Policy as well as your family health plans that cover even your parents.
Here are five crucial things that will help you understand and maximise tax savings better.
Maximum Limits for Claiming Tax Benefits under Section 80D
As already discussed, the premiums paid for health insurance are qualified to be considered for deduction in your taxable income. There are certain limits to these benefits. These benefits range from Rs 25,000 to 1, 00,000 depending on the age and number of people insured.
1st scenario: When Individual, Spouse and Their Children Are Insured
Here if only the individual has enrolled in health insurance, she or he will be eligible for a maximum of Rs 25,000 tax benefit. Similarly, if the individual’s spouse, as well as their children, are enrolled, the tax benefit remains the same. However, if the age of the insured individual is 60 or above, then the maximum limit increases by 100%, i.e. to Rs 50,000, either for the individual or for his or her family members, which includes spouse and children. Here, the dependency of children is not an issue with regards to health insurance premium payment but within an age limit that varies from company to company.
2nd Scenario: When Individual, Spouse, Their Children and Both the Parents Are Insured
In this case, family health insurance also includes the parents, which is why the premium paid for tax saving is doubled Rs 25,000 to Rs 50,000, i.e. Rs 25,000 for individual, spouse and children, while the other Rs 25,000 for parents. This maximum limit is provided only when the parents are below the age of 60 years. Once the parents attain the age of 60 years or more, the limit is further stretched to 50,000 for parents, which means if the parents are above 60 while the policyholder individual can get a maximum tax benefit of Rs 75,000, which includes 25,000 for self, spouse and children and 50,000 INR for parents. Moreover, if both the policyholder as well as the parents are above 60 years of age, the maximum benefit can go up to Rs 1,00,000.
There are some instances when the maximum permissible amount for tax benefit is not achieved through premium payment, so in such cases, till the time the gap in the amount is limited to Rs 5,000, it can still be filled by availing a preventive health check-up provided under Section 80D. Therefore, it must be remembered that the maximum cost in preventive health check-up is Rs 5,000 and it cannot be claimed if the premium amount has already reached the Rs 25,000, Rs 50,000 or Rs 1,00,000 limit.
Get Tax Benefit on All Types of Health Insurance
Health insurance can be indemnity or defined benefit kinds; however, Section 80D of the Income Tax Act does not specify the type of plan. It simply needs to have a health component to it. So, apart from Mediclaim plans, one can also avail tax benefit from defined benefit plans, such as daily hospital cash plan and critical illness plan, which can be purchased either from a health insurance company or a general insurance company.
Health Riders under a Life Insurance Policy
As already discussed, the Section 80D tax benefit is applicable for premiums paid towards any health policy and does not limit to only health insurance plans. Thus, the premiums paid towards medical insurance or critical illness riders in any life insurance plan also come under tax benefits.
The income tax rules disallow for tax benefit if the premium has been paid in cash, so it is important to use any medium but for premium payment. However, cash payments are allowed for the preventive health check-up component under Section 80D benefit.
So, next time before buying a health insurance plan, one has to look into health insurance calculator and understand the prospective premium payment, and the resultant tax benefit. In addition, one must also have a thorough reading of the policy document to understand the inclusions as well as exclusions.