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Insurance Article

What is Health Insurance and How It Can Save Tax?

January 29 2017
Save Tax Health Insurance

Understanding how you can save tax from health insurance

Simply put together, a health insurance is an insurance policy that covers the medical expenses incurred for the treatment of an insured. The insured either pays the expenses from his own pocket and then obtains reimbursement or seeks cashless treatment wherein the insurance company makes the payment directly to the healthcare service provider.

The level or kind of indemnity against healthcare costs depends on the kind of health insurance cover and the level of sum insured opted for. The insured can claim medical expenses only on hospitalisation if the insurance policy bought does not cover pre-hospitalisation and post-hospitalisation expenses. If you want your insurance company to pay for pre-hospitalisation as well as post-hospitalisation expenses, then you must ensure these expenses are included when you buy the insurance policy.

You can also opt for a cover that includes offer of daily cash on hospitalisation which takes care of petty cash expenses.

Premium Varies As Per Cover

Beware that the premium you pay for the health insurance cover will be higher or lower depending on the sum insured you choose and the healthcare expenses you choose to include in addition to hospitalisation expenses.

The level of sum insured also determines the kind of hospital room you will be entitled. A lower sum insured will entitle you to a shared or general ward room and a higher sum insured can entitle you to a single bed room. The insurance company also links some of the other charges at the hospital to the kind of room you are entitled to. Actual expenses or charges at the hospital exceeding the sub-limits set by your insurance company are to be paid by you from your own pocket.

Health Insurance is Primarily a Protection

You should never consider buying a health insurance plan for the sake of saving tax. Health insurance is a protection from unforeseen healthcare expenses which can cripple your finances. It must be primarily bought to protect your finances from any healthcare costs. Reduction in the income tax outgo in the process should be considered a bonus and not the principal benefit.

Section 80D of the Income Tax Act provides for tax benefit on the amount paid as premium for health insurance. The basic condition is that the premium should be paid by cheque, electronic funds transfer, or any digital medium. Payment of health insurance premium in cash disqualifies the insured from claiming tax benefit.

The tax benefit available to an individual taxpayer is when health insurance is bought for self, spouse, dependent children. A separate premium expense limit is available for individuals when health insurance is bought for parents. For Hindu Undivided Family (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 taxpayer insured is a senior citizen or a very senior citizen
  • An additional premium of up to ₹25,000 when health insurance is purchased for parent/s of the assesse; The limit is ₹30,000 if the parent/s insured is/are senior citizen/s or very senior citizen/s

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

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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