Medical costs are rising fast. A single hospital visit can cost thousands. That is why many people buy a health insurance policy to protect themselves and their families. However, did you know that you can also save tax if you have an insurance plan?
This blog will explain the tax advantages of health insurance and how you can claim these benefits.
What is Section 80D?
Section 80D is a provision under the Income Tax Act of India that allows individuals to claim deductions on premiums paid for health insurance. It encourages people to invest in medical coverage by offering tax benefits. The deduction is available for premiums paid for self, spouse, children and parents. You can also claim deductions on expenses for preventive health check-ups. Senior citizens enjoy a higher deduction limit. Section 80D helps reduce taxable income to some extent for individual taxpayers and the Hindu undivided family.
What are the tax benefits of health insurance?
The following are the main tax benefits you get from having health insurance:
1. Health insurance premiums
You can save taxes by paying health insurance premiums not just for yourself but also for your spouse, children and parents. The maximum deduction under section 80D is ₹100000 for self, spouse, dependent children and parents.
A deduction of ₹25,000 a year is possible for policies purchased for self, spouse & dependent children, the age of all family members being below 60. For senior citizens, the limit is ₹50,000 for self and spouse. For parents less than 60 years of age, the maximum deduction under section 80D is ₹25,000; however, for parents above 60 years of age, it is ₹50,000
If you and your spouse are below 60 years of age, but your parents are 60 and above, then you can claim a total deduction of up to ₹75,000. Similarly, if you are 60 years old or more, and your spouse or parents are also 60 and above, then you can claim a total deduction of up to ₹100,000.
2. Health check-ups
Taxpayers can claim up to ₹5,000 for preventive health check-ups for themselves, their spouse, dependent children or parents. This amount is included within the overall deduction limit of ₹25,000 or ₹50,000, depending on eligibility.
For example, if your premium is ₹22,000 and you pay ₹6000 for health check-ups, then you can claim a deduction of ₹25,000 under Section 80D. ₹ 22,000 will be allowed for the premium and ₹3000 for the health checkup.
3. Indemnity and fixed benefit health insurance plans
There are two types of health insurance policies: Indemnity-based health insurance plans and defined-benefit health insurance plans. The former covers the cost of medical expenses during hospitalisation. Examples include mediclaim and family floater plans. The latter pays a lump sum amount irrespective of the actual hospital expense. These plans include critical illness cover and a daily hospital cash plan.
Premiums for both indemnity-based and defined-benefit health insurance qualify for tax deduction under Section 80D.
4. Health insurance for Hindu Undivided Family (HUF)
If you are purchasing health insurance for members of your Hindu Undivided Family (HUF), you can save taxes under Section 80D. You can claim a deduction of up to ₹25,000 in a financial year for premiums paid towards health insurance of any of the members. If the insured member is a senior citizen (aged 60 years or more), the deduction increases to ₹50,000.
Example 1
Let’s see a simple example:
Raj is 35 years old. He buys a health insurance policy for himself, his wife and their child. He pays ₹20,000 in premiums every year. He also pays ₹4,000 for an annual health check-up.
Raj can claim a deduction of ₹20,000 for the insurance premium.
He can also claim ₹4,000 for the preventive health check-up (within the ₹25,000 total limit).
So his total deduction under Section 80D will be ₹24,000.
If Raj’s taxable income was ₹8,00,000, then after this deduction it becomes ₹7,76,000. His tax will be calculated on ₹7,76,000 instead of ₹8,00,000. That saves him money.
Example 2
Let’s take another example, with parents involved.
Anita is 40 years old. She has a health insurance policy for herself, her husband and her children, with a premium of ₹22,000. She also buys health insurance for her parents, who are senior citizens, paying ₹48,000.
For her own family, she can claim ₹22,000. For her senior citizen parents, she can claim up to ₹50,000 (since she paid ₹48,000, she claims the full amount).
Anita also spent ₹3,000 on a preventive health check-up for herself. This is allowed within the ₹25,000 limit for her family.
So the total deductions for her policy would be:
₹22,000 + ₹3,000 = ₹25,000 for herself and family (within the limit)
₹48,000 for her parents
Total = ₹25,000 + ₹48,000 = ₹73,000
If Anita’s taxable income was ₹12,00,000, she can bring it down to ₹11,27,000. This will save her a good amount of tax.
Conclusion
Medical expenses can be high, and without insurance, a single illness can drain your savings. Apart from the security it provides, family and individual health insurance also gives you tax benefits. By using Section 80D properly, you can save thousands every year. It is a smart way to look after both your health and your finances.
If you feel unsure about choosing the right health insurance, you do not have to decide alone. We are here to help you find the best cover for your needs. Simply fill out the form on this page, and we will guide you with expert advice.
FAQs
1. Can I claim Section 80D if my employer pays for my health insurance?
Yes, you can claim the part of the premium you pay yourself. If your employer pays the full amount, then you cannot claim.
2. Is there a separate deduction for preventive check-ups?
There is no separate limit. Preventive check-ups are included within the ₹25,000 or ₹50,000 limit.
3. What if I pay the premium in cash?
You cannot claim tax benefits on premiums paid in cash. Always pay through banking channels, like a card or online transfer.
4. If I have two separate policies, can I claim for both?
Yes, you can claim the total premiums paid, up to the maximum limits allowed under Section 80D.
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 a certified medical and/or nutrition professional for any questions. 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.