Health

Tax Benefits in Health Insurance: The Basics and the Numbers

 Tax saving is an essential part of financial planning. A prudent taxing saving plan will allow you to meet your financial goals while save a good amount of money in tax. And when we talk about protecting your financial goals and saving tax, it is a sensible idea to invest in insurance.

Health Insurance

Tax Planning with Health Insurance

Most investment experts suggest that the first step to financial planning should be to ensure your medical needs with an appropriate health insurance policy. Get an adequate health insurance cover for yourself and your family, before you start to save for your future goals.

Besides the innumerable benefits that you get with health insurance plans, the premium paid for the insurance allows you tax exemption thereby reducing your tax liability.

Understanding the Tax Benefits of a Health Insurance Policy

Income tax rules can appear to be complicated, especially for those who do not understand the financial terms. Obviously for a layman, it can be difficult to understand the financial jargons and claim for tax savings. In this blog, we will throw some light on the tax provisions in finer detail to clear any confusion, so that you can claim the best on what is allowed under the law.

 

Tax Benefit is Available on All Types of Health Insurance

All types of health insurance plans qualify for tax benefit, including ‘indemnity’ and ‘defined benefit’ health insurance plans. ‘Indemnity plans’ include individual health insurance plan or mediclaim and family floater plans and ‘defined benefit plans’ include critical illness plan, daily hospital cash plan, etc.  Medical insurance policy offered by general insurance companies would qualify for tax benefits.

Tax Benefits under Section 80D of Income Tax Act

The Income Tax Act 1961 regards health insurance as an important investment, and the tax exemption it offers is given to encourage more and more people to follow a healthy lifestyle and buy health plans. When you buy a medical insurance policy, you can claim tax deductions under Section 80D of Income Tax Act 1961. According to this Act, income tax exemptions can be received on the premiums paid towards health policies for self, spouse and children, and also towards non-senior citizen dependent parents and senior citizen dependents.

Eligibility to Avail Tax Deduction on Health Insurance

The premiums that you pay towards a health policy are exempted from your income tax liability for a particular financial year. You can claim tax deduction only for your family members under section 80D of Income Tax Act 1961, including –

  • Self (policyholder)
  • Spouse
  • Dependent children
  • Parents

Extent of Tax Deduction Allowed in a Financial Year

Here’s a table that details on the total deductions that you can claim under Section 80D-

  Self, Spouse & Dependent Children  

Parents

Total Deduction Under 80D
When all people included in the policy are below 60 years of age  

₹25,000

 

₹25,000

 

₹50,000

Assessee, spouse and children are less than 60 years and parents are above 60 years  

₹25,000

 

₹30,000

 

₹55,000

Assessee and his parents are equal to or above 60 years  

₹30,000

 

₹30,000

 

₹60,000

 

Exclusions to Know When Claiming Deduction Against Section 80D

You cannot claim tax benefit under medical insurance policy, if –

  • You have purchased a policy your in-laws.
  • You fail to provide proof of insurance.
  • You make the premium payment by cash.
  • You paid the premiums using the money you received as a gift.

Another thing to note is that the tax benefit will only be applicable if the premium is paid from your taxable income of that financial year.

A Few Important Things to Know About Health Insurance Tax Deduction

Whether you buy health insurance online or offline, you can claim deduction for it. Besides, there are a few things that you need to know before claiming deduction –

  • Besides claiming tax exemptions on the premiums, deduction for preventive health check-ups under Section 80D is also allowed.
  • If you buy a health policy for your parents, you can get an additional tax deduction on the premium. However, the maximum exemption for parents cannot exceed ₹25,000.
  • Premium payment should be made by any payment mode other than cash to be eligible for tax exemption. Premium payments acceptable for deduction are the ones made through cheque or card.
  • Any tax charged on health plan premiums is not excluded from deduction.

Investing in health insurance whether an individual plan or family health insurance will help you protect your medical needs and also allow you to take advantage of tax exemptions. However, when investing in health insurance you shouldn’t merely do it for tax saving. You can explore health insurance online to find a health plan that caters to your medical needs.