Many people in India invest only to save tax. They invest in PPF, NSCs, tax-saving FDs, ELSS schemes, and insurance policies. A health insurance policy offers tax benefits under Section 80D of the Income Tax Act of 1961. In recent years, medical insurance has become a necessity. Many people have started looking for medical insurance plans that offer them comprehensive coverage. To find the best health insurance plan in India, they compare providers and plans and consider their health issues.
Today, we will talk about some unknown medical insurance tax benefits.
What Does Section 80D Say?
Section 80D of the Income Tax Act is about deductions in respect of health insurance premiums. It states that health insurance policyholders can use the amount paid towards premiums of their policies for tax deductions. In simpler words, you are allowed to deduct an amount equal to the premium paid from the taxable income for the purpose of tax calculation.
Lesser Known Tax Benefits – Health Insurance
Here are some lesser-known tax benefits of medical insurance plans.
Limits on tax deductions on health insurance premiums
As per Section 80D, the amount paid by you as a premium for a health insurance policy for yourself, your spouse, children, and parents can be deducted from your gross annual taxable income for the purpose of computing tax liability. The limits are as follows:
- All family members less than 60 years of age: Maximum amount that can be claimed as tax deduction = ₹25,000
- Parents are senior citizens, and all other members are less than 60 years of age: Maximum amount that can be claimed as tax deduction = ₹50,000
- You and your spouse are not senior citizens, but your parents are, and you are paying all the premiums. Maximum deduction limit = ₹75,000
- You, your spouse, and your parents are all senior citizens: Maximum amount that can be claimed as tax deduction = ₹1 lakh.
Family health checkup
Section 80D also allows you to claim a tax deduction for an amount spent towards an annual health check of self, spouse, parents, and children. A tax deduction is up to a maximum limit of ₹5000 per year. It is important to remember that this limit is a part of the premium-based tax deduction and not over and above it.
Two Types of Medical Insurance Plans And Tax Benefits
Health insurance plans can be categorised into two types:
- Defined benefit plans where the insurer and policyholder agree that the insurer would pay a fixed amount at the beginning of the policy term.
- Indemnity plans where the insurer pays the actual costs of medical treatment and care
The Income Tax Department allows a tax deduction for both categories of medical insurance plans.
Note: Cash payments are ineligible for tax benefits
There can be times when you pay a premium via cash at the office or branch of an insurer. In such cases, the insurer marks your payment as received in the system. However, the IT department does not consider it a qualified payment for tax deductions. Cheque/direct transfer payments to the insurer only offer these benefits.
Health insurance plans offer tax benefits and financial coverage for different types of medical treatments and costs. This makes them a financially sensible investment. Even if you are following a healthy eating and exercise regimen, medical emergencies can never be completely avoided. Hence, it is best to be financially prepared to manage such situations without having to worry about costs. Also, with added tax benefits, health insurance policies will soon become a household name in India.