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Insurance Article

What Amount of Tax Does Health Insurance Save?

January 31 2017
    Save Tax Health Insurance

How to save tax and get health protection at the same time

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 benefit of buying health insurance. The premium amount paid is allowed as deduction from total income for computation of tax payable, which lowers your tax liability.

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.

Deductions allowed from total income under Section 80D for the year 2016-17 is as follows:

For Individual

  • Premium up to ₹25,000; The limit is ₹30,000 if the person insured is a senior citizen or a very senior citizen
  • An additional premium up to ₹25,000 when health insurance is purchased for parent(s) of the assesse. The limit is ₹30,000 if a parent insured is a senior citizen or very senior citizen

For HUF

  • Premium up to ₹25,000; The limit is ₹30,000 if the member insured is a senior citizen or very senior citizen
  • The additional benefit offered to individuals is not available in the case of HUF

Section 80D further provides that an individual as well as HUF can claim deduction of up to ₹30,000 of medical expenditure for a very senior citizen, who is not covered by health insurance. A person 60 years and above is defined as a senior citizen and 80 years and above as a very senior citizen.

The aggregate amount of deduction that can be claimed under Section 80D by an individual is ₹60,000 and by HUF, it is ₹30,000.

The following illustrations explains the maximum amount of tax saving on purchase of health insurance

Premium paid Total premium paid Tax saved when in 10% tax bracket Tax saved when in 20% tax bracket Tax saved when in 30% tax bracket
For Individual
₹25,000 for family PLUS ₹30,000 for 60-year-old parent ₹55,000 ₹5,500 ₹11,000 ₹16,500
₹30,000 when assesse is 60-year-old PLUS ₹ 30,000 for 80-year-old parent ₹60,000 ₹6,000 ₹12,000 ₹18,500
For HUF
₹30,000 premium for HUF which includes a 60-year-old member ₹30,000 ₹3,000 ₹6,000 ₹9,000

Section 80D also allows deduction of up to ₹5,000 spent on preventive health check-up, which is permitted to be paid in cash for claiming tax benefit. The above-mentioned tax benefits can also be availed on health top-ups, super top-ups and critical illness covers.

Related Article:

Lesser Known Facts About Tax Benefits of Health Insurance
Should Limits for Health Insurance be Increased in This Budget?

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