Health insurance is a critical component of a financial plan especially when healthcare costs are on a rise. In addition, the cost of treatment for major diseases is prohibitive. Sudden hospitalisation expenses can have a weakening impact on a family’s financial condition.
Buying health insurance for yourself, spouse, dependent children, and parents is a protection from heavy financial loss due to hospitalisation of a family member. There is an additional health insurance. The premium amount paid is allowed as deduction from total income for computation of tax payable, which lowers your tax liability.
How to save tax on health insurance premium payment?
You can save tax on health insurance by opting for a comprehensive policy and paying your premium through a non-cash mode. The key strategies to maximise tax savings include:
- Purchasing a medical insurance policy for yourself and your family.
- Paying the premium in full to claim deductions for the entire financial year.
- Opting for a critical illness insurance policy to claim additional tax benefits.
- Ensuring parents above 60 years are covered, as it increases the deduction limit.
What are the tax benefits of health insurance?
Health insurance offers multiple tax benefits, including:
- Deduction under Section 80D for premiums paid on self, family and parents’ insurance.
- Additional tax benefits under Section 80DDB for the treatment of specified critical illnesses.
- Exemptions on medical reimbursements and allowances provided by employers.
- Higher deductions for senior citizen parents.
Health insurance and tax saving: What are the exclusions?
While health insurance provides tax benefits, certain exclusions apply:
- Cash payments made towards insurance premiums are not eligible for deductions.
- Group health insurance provided by an employer is not considered unless the employee pays an additional premium.
- Deduction for critical illness insurance is only applicable under specific conditions.
- Medical expenses reimbursed by an employer cannot be claimed separately under tax deductions.
Health insurance tax deductions under section 80C
Section 80D of the Income Tax Act provides tax benefits on the amount paid as premium for health insurance. The basic condition is that the payment of premium should be made by cheque, electronic funds transfer, or any digital medium. Payment of health insurance premium in cash disqualifies the insured from claiming the tax benefit.
The benefit is available for an individual as well as a Hindu Undivided Family (HUF). Amount paid for the central government’s health scheme also qualifies for tax benefit under Section 80D. The tax benefit is available when health insurance is bought for self, spouse, dependent children, and parents in the case of individuals. For HUF, health insurance purchased for any member can be claimed as deduction from total income for arriving at the tax payable.
Eligibility for income tax deduction u/s 80D of ITA
Under Section 80D, individuals can claim deductions on premiums paid for medical insurance:
- Self, spouse and dependent children: Up to INR 25,000 per year.
- Parents below 60 years: Additional INR 25,000.
- Parents above 60 years: Additional INR 50,000.
- Total deduction: Up to INR 1,00,000 if both the taxpayer and their parents are senior citizens.
Save tax under section 80DDB (Treatment of critical illnesses)
Section 80DDB allows tax deductions on medical expenses for specific critical illnesses, including cancer, kidney failure and neurological diseases. Individuals can claim:
- Up to INR 40,000 for individuals below 60 years.
- Up to INR 1,00,000 for senior citizens.
- Critical illness insurance can help cover treatment costs and offer additional financial security.
Tax planning under section 80DD (Treatment of a dependent with disability)
This section provides tax deductions for individuals caring for a dependent with a disability. The benefits include:
- Up to INR 75,000 for dependents with disabilities (40%–80%).
- Up to INR 1,25,000 for dependents with severe disabilities (>80%).
Save tax through section 80U (Person with disability)
Unlike Section 80DD, which applies to dependents, Section 80U benefits individuals with disabilities. The deductions include:
- INR 75,000 for a person with a disability (40%-80%).
- INR 1,25,000 for severe disability (>80%).
Income tax deduction on medical allowance under section 17
Section 17 of the Income Tax Act allows salaried employees to claim exemptions on medical insurance reimbursements provided by their employers. However, this is subject to certain conditions and does not overlap with other deductions under Sections 80D or 80DDB.
FAQs
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Can I claim tax benefits if I pay my parents' health insurance premium?
Yes, you can claim a deduction under Section 80D for premiums paid on your parents’ health insurance.
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Is critical illness insurance covered under tax deductions?
Yes, under Section 80DDB, you can claim tax benefits for expenses incurred on critical illness treatments.
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Can I claim deductions if I have employer-provided health insurance?
No, unless you pay an additional premium on your own, employer-provided insurance does not qualify for tax deductions.
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What is the maximum deduction I can claim under Section 80D?
The maximum deduction under Section 80D is INR 1,00,000, provided both the taxpayer and their parents are senior citizens.
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Is the tax deduction applicable if I pay the premium in cash?
No, only payments made through non-cash modes such as digital transfers or cheques are eligible for tax deductions.
Conclusion
Health insurance is a crucial financial tool that provides medical security and substantial tax savings. By understanding different sections of the Income Tax Act, individuals can maximise their savings while ensuring they and their families are covered. Investing in medical insurance and critical illness insurance not only provides financial protection but also helps in effective tax planning. Ensure you choose the right health insurance policy to make the most of these benefits while securing your health and future.
Disclaimer: The information provided in this blog is for educational and informational purposes only. It is not intended as a substitute for professional advice, diagnosis, or treatment. Please consult your general physician or another certified medical professional for any questions regarding a medical condition. Relying on any information provided in this blog is solely at your own risk, and ICICI Lombard is not responsible for any effects or consequences resulting from the use of the information shared.