Tax benefits covered under various types of general insurance
Tax saving is an important aspect of your financial planning for a particular year. An intelligent planning will not only help you meet your financial goals, but also save tax in the process. Investing in insurance is a sensible idea to protect your future and take advantage of the tax benefit.
Health Insurance
With a rise in the number of lifestyle related diseases along with increasing hospitalisation and treatment costs, health insurance has become a necessity. It acts as a cushion in times of life-threatening illnesses and accidents. At the same time, it can also act as a useful tax saving instrument.
As per Section 80D of the Income Tax act, you can easily avail tax benefits on the premium paid towards health insurance. This makes it a lucrative tax saving option that also safeguards you against health perils.
Tax deduction under Section 80D for self, spouse and dependent children include:
- Up to ₹ 25,000 per year if you are below 60 years of age
- Up to ₹ 30,000 per year if you are above 60 years of age
Besides, you can avail additional deductions for your parents in the following manner:
- Up to ₹ 25,000 per year if they are below 60 years of age
- Up to ₹ 30,000 per year if they are above 60 years of age
Therefore, you can avail a maximum deduction of ₹60,000 if you and your parents are senior citizens. The amount mentioned above is inclusive of ₹5,000 for preventive health check-up. The above-mentioned exemption can also be claimed for health top ups, super top ups and critical illness policies as well.
Please note that you cannot claim premiums paid for your in-laws and siblings. Another important requirement is that the tax benefits can be availed only when the premium amount for the insurance is paid by any mode other than cash. You can use internet banking, cheque, demand draft, credit or debit card, etc. to make your payment.
Motor Insurance
If a car is used for business purpose, the premium paid for car insurance can be treated as an expense. There is no maximum limit on the insurance premium amount that is claimed as an expense, provided that the car is used only for a business purpose.
However, if the car is being used for a personal purpose, the insurance premium cannot be treated as an expense. If the car is sometimes used for a personal purpose and sometimes for business, then a deduction can be allowed for the premium for the duration where it has been used for business.
Critical Illness Insurance
A health insurance usually does not cover several life-threatening diseases like cancer, paralysis, stroke etc. With escalating hospitalisation expenses, it becomes crucial to get protection against such illnesses especially if you are the sole bread earner of the family. Interestingly, a critical illness plan too offers attractive tax benefits.
The premium paid towards critical illness is tax deductible under Section 80D of the Income Tax Act, 1961. Tax deduction for critical illness is the same as for health insurance, i.e., up to ₹25,000 for citizens below 60 years of age and ₹30,000 for senior citizens. Additional deductions for parents will also be similar to health insurance.
Top-Up and Super Top-Up Plans
A top-up plan allows you to make a claim that exceeds the deductible value and sum assured of the base policy during a single hospitalisation. Super top-up plans on the other hand pays for cumulative medical expenses within a policy year once the claim amount exceeds the deductible and sum assured of the base policy. It offers coverage that is not payable by your top-up plan or base policy.
For example, you have a base cover of ₹5 lakh, a top-up of ₹10 lakh and a super top-up of ₹10 lakh, both with ₹ 5 lakh as deductible. You make two claims of ₹4 lakh each in a single year. Your basic health policy will cover ₹ 4 lakh and ₹ 1 lakh of the claims. Since your top-up has a deductible of ₹ 5 lakh and your expenses are below that, you cannot use it. However, your super top-up will cover the remaining ₹ 3 lakh.
The premium paid towards health top-up and super top-up plans is eligible to avail tax benefits under Section 80D of the Income Tax Act, 1961. The tax deduction limits will be similar to health insurance and you can avail benefits up to ₹25,000 if you are below 60 years of age and ₹30,000 if you are a senior citizen. Additional deductions for parents will also be similar to health insurance.
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