How does Health Insurance Help in Tax Saving?

The Buyt Desk 

Nowadays healthcare is too costly and buying health insurance is a must for all. Medical insurance helps you in many ways including saving your income tax.

Medical emergencies take us by surprise. And the majority of the Indian population does not have health insurance.  Most depend on their savings during medical emergencies or take hand loans from friends and relatives. To encourage Indians, the Government of India allows avail tax deductions on medical insurance premiums under Section 80D of the Income-tax Act.

What is Section 80D of the Income-tax Act?

Under Section 80D, for medical insurance premiums paid in any given year, every individual or HUF (Hindu Undivided Family) is eligible to claim a tax deduction from their total income. The same is applicable to top-up health plans and critical illness plans. Deductions claimed under this section, are over and above the deductions claimed under Section 80C of the Income-tax Act.

Eligibility under Section 80D

1. No other entity, other than the Individual and HUF like a company or a firm can claim a deduction under this section.

2. Deduction for senior citizens’ medical insurance premiums and medical expenses is allowed for the Individual or HUF category of taxpayers only

3. For individual or HUF taxpayers, insurance can be availed for self, spouse and dependent children and parents

Payments eligible as a deduction

• A medical insurance premium paid (not in cash) for self, spouse, dependent children, or dependent parents

• Expenses of preventive health check-ups

• Medical expenses of senior citizens not covered under any health insurance scheme

• The contribution made to the government health schemes as notified by the government

What deductions are available under Section 80D?

The deduction allowed under Section 80D is Rs 25000 per financial year for adults and Rs 50000 per senior citizens. Below are various scenarios:

Preventive health check-ups under 80D

In 2013-14, to encourage citizens to be proactive toward health, the government introduced preventive health checkup deductions. The aim of this health check-up is to identify illness or potential health conditions and mitigate risk factors at the early stage. Section 80D allows a deduction of Rs 5000 for preventive health check-up expenses. This deduction is included in the overall limit applicable. Cash payments for preventive health check-ups are considered for deductions.

Tax benefits for Single-premium health insurance policies

A new provision was made in Budget 2018 for claiming a deduction on payments made for single-premium health insurance policies. Under Section 80D, the deduction can be claimed on a single premium health insurance policy valid for more than one year. Only a fraction of the premium can be claimed based on policy duration and other conditions.

Summing up

• A medical insurance premium can be claimed for deduction only when paid for a spouse, dependent children and dependent parents and not for a brother, sister, grandparents, aunts, uncles, or any other relative.

• Premium paid for independent (earning) children cannot be claimed.

• Partial payment made by you and a parent can claim a deduction to the partial payment made by each.

• The service tax and cess portion of the premium will not be considered for deduction.

• A company-provided group health insurance premium is not considered for deduction.

• Premium paid cash is not allowed for deduction.