As the fiscal year’s end looms closer, most of us are left rushing about in an attempt to make heads or tails of our financial situation. We review our bank statements, tally up our expenses, and try to make sense of the numbers. What if we were to inform you there exists a viable solution to alleviate the stress associated with this process? Here, we introduce Sections 80C and 80D of the Income Tax Act to you. These two Sections offer a world of possibilities when it comes to saving on taxes and maximising your income.
Understanding income tax deductions in health insurance
The deduction sum an individual is eligible for depends on several factors, such as the policyholder’s age and the sum insured. For instance, an individual under the age of 60 years can claim up to Rs 25,000 as a deduction, while those above 60 can claim up to Rs 50,000. Additionally, policyholders paying health insurance premiums for their parents can claim an extra deduction of up to Rs 25,000 (parents under 60) or Rs 50,000 (parents above 60).
It’s important to note that the deduction is applicable only for health insurance plans and not for other types of insurance, such as life insurance policies. Additionally, the deduction benefit is only available for payments made through cheques, electronic transfers, or demand drafts.
How much deduction can I claim under Sections 80C & 80D?
Since we have already discussed the deduction limit under Section 80D, let’s throw some light on another Section in question. Under Section 80C, a deduction of up to Rs 1.5 lakh per financial year on multiple schemes is available. Some eligible investments under this section include:
- Life insurance premiums: Any premiums paid towards life insurance policies, including term plans, endowment plans, and ULIPs, qualify for a deduction under Section 80C. The insurance must be under the name of the person paying tax or their spouse or children. Additionally, the policy premium must not surpass 10% of the coverage amount.
- Public Provident Fund (PPF): Contributions made towards a PPF account are eligible for a deduction under Section 80C. The interest earned is also tax-exempt.
- Equity-Linked Saving Scheme (ELSS): It is a mutual fund investment where the fund manager parks your money primarily in companies’ equity shares.
- National Savings Certificate (NSC): NSC is a government scheme where the interest earned is reinvested and paid out in full at maturity.
- Sukanya Samriddhi Yojana (SSY): SSY is a government scheme promoting girl child welfare, offering eligible 80C deductions on contributions and tax-free interest earnings.
Eligibility criteria for tax deduction under Section 80C & 80D
To be eligible for tax benefits under both sections, avoid the following things.
Section 80C:
- Do not invest in non-specified schemes that are ineligible for a tax benefit.
- Do not exceed the maximum limit of Rs 1.5 lakhs per year for the deduction claimed.
- Do not claim tuition fees for more than two children.
- Do not forget to include home loan principal repayment and life insurance premium paid while claiming deductions.
Section 80D:
- Do not claim medical expenses that an insurance company or employer has reimbursed.
- Do not claim preventive health check-ups for more than Rs 5,000.
- Do not claim medical insurance premiums paid for non-eligible family members such as siblings or grandparents.
- Do not claim deductions for medical expenses incurred outside India.
Conclusion
Maximise your tax savings with income tax deductions under Sections 80C & 80D. Choose eligible instruments, consult a chartered accountant if you need clarity on Sections 80C and 80D limit, and avoid penalties for incorrect filing. Save smart, save big!
Disclaimer: The information provided in this blog is for educational and informational purposes only. It may contain outdated data and information regarding the relevant industry. It is advised to verify the relevance of the data and information before taking any major steps. ICICI Lombard is not liable for any inaccuracies or consequences resulting from the use of this outdated information.