Know all about tax benefits on health insurance policies

Know all about tax benefits on health insurance policies

Most financial experts believe that the first step towards building a sound future should be to ensure that one has a sufficient health cover. As it is said that the health is wealth, it is imperative to look at the health of the self and the family because only a healthy 'you' can accomplish other dreams in life.

You might have got the intimation from your company to submit investment proofs to claim a tax deduction.In this situation, it becomes even more important to get a health insurance for self and family, which is also eligible for tax benefits.

Here are some crucial things that you can know about tax benefits on health insurance policies as per the Income Tax Act.

Health insurance for self, parents, and family: Premiums paid towards health insurance policies for self, parents, spouse, and kids are eligible for tax deduction under Section 80D of the Income Tax Act. Most importantly, it doesn't matter whether children and parents are dependent on you or not.Further, the quantum of tax deduction depends on the age of the insured.

Even top-up and super top-up policies, which offer additional health insurance coverage when the deductible of the main insurance policy is crossed, offer tax benefits under the same act.

The table below will help you to understand various scenarios

ScenariosSelf, Spouse & ChildrenParents (whether dependent or not)Total deduction under Section 80D
No one in the family is above the age of 60Rs 25,000Rs 25,000Rs 50,000
Except parents, everyone is below the age of 60Rs 25,000Rs 30,000Rs 55,000
All members of the family are above 60 years of ageRs 30,000Rs 30,000Rs 60,000

Moreover, the indemnity policy, popularly called media claim and family floater, is not the only one with tax benefits.Defined benefit plans like daily hospital cash plan and critical illness plan from a standalone health insurance company and general insurance companies get tax deductions.

  1. Health insurance riders bought from life insurers: Health insurance riders offered by life insurers are also eligible to get a tax deduction under the Section 80D. The premium paid towards the medical insurance rider and critical illness riders also qualify for tax benefits. Further, premiums paid on health insurance policies offered by life insurance companies are eligible to get tax deductions.
  1. Medical expenditure on critical ailments: Under the Section 80DDB, you can claim deduction up to Rs 40,000for medical expenses incurred in respect of specified ailments either on yourself, parents and children. However, the amount may vary as per the age of the insured. For senior citizens between 60 years and 80 years, the limit is Rs 60,000 and for super senior citizens, (above 80 years), the tax limit is Rs 80,000. It is necessary to submit a medical certificate (capturing all the requisite details) obtained from a specialist doctor to claim the tax deduction.

Some of the diseases covered under this act are cancer, thalassemia, neurological diseases with 40% or more disability, hemophilia, Parkinson, chronic renal failure, etc. Earlier, the assessee was required to submit the medical certificate obtained from a specialist doctor working in a government hospital. However, the government has recently made amendments which say that even a certificate issued by a private doctor would be valid.

Note, if you get reimbursed for the treatment from your insurer or employer, you are not eligible to get tax deductions under Section 80DDB. However, if you get partial reimbursement from your employer, you can claim a deduction for the remaining amount.

  1. Health checkups: Preventive health checkups are eligible to get tax benefits up to Rs 5,000 within the maximum limit of Rs 25,000 and Rs 30,000. It means, if your health insurance premium is Rs 20,000 and you undergo a medical test of Rs 5,000, you can get a total tax benefit of Rs 25,000 as per the Income Tax Law. However, if your medical expenses are Rs 8,000 and the insurance premium is Rs 20,000, you will get the total of Rs 25,000 deduction. However, you should note that tax benefits are available only on preventive checkups and not on checkups done during the treatment.
  1. Medical expenses on disability: Any differently abled person with 40% disability or more can claim a tax deduction up to Rs 75,000 for medical expenses incurred on self under Section 80DD. The amount reaches to Rs 1.25 lakhs in case of people with over 80% disability. To claim this deduction, you need to submit a copy of the medical certificate issued by the specialist doctor along with a 10-IA form at the time of filing the return.
  1. Premium payment via cash: Though, you can pay premiums in cash, the income tax rule doesn't give tax benefits on premium paid in cash. It means, to qualify for tax benefits, you should pay premiums via internet banking, cheque, credit card or any mean other than cash. However, the cash payment for preventive health check-ups gets the tax deductions. Make sure you keep all receipts to get tax benefits.
  1. Service tax on premium: The insurer charges service tax on health insurance premiums. However, this amount is not eligible for tax benefits.

An Illustrative Example to Understand

An individual pays the medical insurance premium as follows:

  • Rs 15,000 on his health insurance and
  • Rs 30,000 on the health insurance of his parents

In the above example, the individual would get a deduction of Rs 40,000 (15,000+25,000) in case the parents are below 60years of age. However, if any of his or her parents is a senior citizen, the tax deduction would be Rs45,000 (15,000+30,000).

Health insurance is an important insurance policy that you should include in your insurance portfolio. However, don't buy health insurance just to save tax. Treat the tax as a bonus only.

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