Tax Benefits of having a Health Insurance

Tax Benefits of having a Health Insurance

Review

Why should you have Health Insurance? What are the Tax Benefits of having a Health Insurance?

In today’s world, when a pandemic has changed what was known to be normal, we look for safety for our dear ones. But safety comes at a price. This safety need not cost a fortune in financial terms for most families. Saying this, it is imperative for a person to cover himself/herself and his/her family from such a calamity.

Health Insurance is the way out of such adversities and in order to promote the activity of insuring, our government has been supportive of it. What comes with such support is the tax benefit in financial terms which normal users could take advantage of parallelly.

To not miss out on such initiative in terms of tax savings and covering ourselves from uncertain events and their financial implications, we must know that The Income Tax Act 1961 allows taking a deduction on the premium paid by an individual for himself/herself and for his/her family, HUF also has some benefits, to a certain limit which differs in different age groups.

Health Insurance Tax Benefits
Health Insurance Tax Benefits

Health Insurance Tax Benefits

Section 80D of The Income Tax Act, 1961 gives the right to avail Tax benefits to

  • An Individual (Indian/ Foreign citizen) for themself and his/her
    • Spouse,
    • Dependent Children and
  • Parents (dependent or not dependent; does not include father-in-law and mother-in-law
  • Any member of a HUF
  • Non-Resident Of India (NRI)

In the first case, tax benefits an individual can get because of the premium paid for health insurance:

PARTICULARSSelf & FamilyParentsPreventive Check-upTOTAL DEDUCTION
Self and Family
(Below 60 years of age)
₹25,000/--₹5,000/-₹25,000/-
Self and Family
(Below 60 years of age) + Parents (Below 60 years of age)
₹25,000/-₹25,000/-₹5,000/-₹25,000/-
Self and Family (Below 60 years of age) + Parents (Above the 60 years of age)₹25,000/-₹50,000/-₹5,000/-₹75,000/-
Self and Family+ Parents
(Above 60 years of age)
₹50,000/-₹50,000/-₹5,000/-₹1,00,000/-

Source: https://www.bankbazaar.com/tax/section-80d.html

In addition to the information given in the table above-

  • Preventive Check-up expenses (by cash or bank) up to ₹5,000/- can be deducted for self, family, and parents. It is inclusive of overall limits.
  • If in case an individual whose age is above 60 years of age (a Senior Citizen) and does not have Health Insurance then the Medical Expense up to ₹50,000/- is allowed to be deducted from taxable income

In the second case, tax benefits an individual can get because of the premium paid for a health insurance

  • The maximum amount of deduction is ₹25,000/- on premium but in the case of a senior citizen the amount is raised up to ₹50,000/-.
  • HUF is not eligible to claim preventive health check-ups.

Citizens also resort to paying a one-time premium so the deduction will be given for the policy’s tenure. Here the amount of the one-time premium is divided by the number of years of policy and then a deduction will be given accordingly. ₹25,000/- for people below the age of 60 and ₹50,000/- for others, is the maximum amount of deduction which is permissible.

Example no 1:

35 year old Mr. Singh has a family floater health insurance for himself, his wife, and 1 son, for which he pays ₹19,000 premium. His parents are aged 63 and 61 years. For his parents, he has a separate senior citizens’ health plan for which he pays a premium of ₹18,000. The total premium he pays is ₹37,000, which is well within the ₹75,000 limits he has as shown in the table above.

Mr, Singh is very particular about his health and undergoes a Preventive Health Checkup every year for ₹6,500. His parents also undergo a Preventive Health Checkup for ₹9,500. The total Preventive Health Checkup amount is ₹16,000. Adding the total premium plus total Preventive Health Checkups amounts, Mr. Singh pays ₹53,000, which is well within the limit of ₹75,000. So, Mr. Singh can claim the entire health insurance premium of ₹53,000 as an income tax deduction under Section 80D.

Taxable income calculation

Mr. Singh’s Gross Total Income: ₹ 6,50,000

(-) Tax deduction under Section 80D: ₹ 53,000

Taxable income: ₹ 5,97,000

Example no 2:

37 year old Mr Vora has family floater insurance covering himself, his wife, and 2 children (a son and a daughter). He pays a premium of ₹35,000 for his family floater policy. His parents are 59 and 56 years of age. He pays a premium of ₹32,000 for a separate policy for his parents. The total premium paid by Mr. Vora is ₹67,000, which is above the limit of ₹50,000 allowed as shown in the above table.

Mr. Vora has already utilized the maximum deduction allowed and if any member undergoes a Preventive Health checkup, he will not be eligible to claim it.

Taxable income calculation

Mr. Vora’s Gross Total Income: ₹ 8,00,000

(-) Tax deduction under Section 80D: ₹ 50,000

Taxable income: ₹ 7,50,000

Example no 3:

61 year old Mr Suresh has a family floater policy covering himself, his wife, and 1 daughter. He pays a premium of ₹40,000 for his family floater policy. His parents are 83 and 79 years of age. He pays a premium of ₹48,000 for a separate policy for his parents. The total premium paid by Mr. Suresh for his entire family is ₹88,000, which is within the limit of ₹1,00,000 allowed as shown in the above table.

Being diabetic Mr. Suresh regularly does a Preventive Health Checkup which costs him ₹5,000 annually.  Adding total premium plus total Preventive Health Checkups amounts, Mr Suresh pays ₹93,000, which is well within the limit of ₹1,00,000 allowed if Self and Family + Parents
all are above 60 years of age.

Taxable income calculation

Mr. Suresh’s Gross Total Income: ₹ 15,00,000

(-) Tax deduction under Section 80D: ₹ 1,00,000

Taxable income: ₹ 14,00,000

The taxpayer should be aware that premiums paid in cash and compensation paid by a person other than the taxpayer, won’t be able to claim deduction under Section 80D.

Tax benefits are definitely a plus side of subscribing to Health Insurance but what matters more is the security it provides us at the same time. These benefits can help in creating a healthy habit of subscribing to Healthy Insurance among taxpayers as uncertainties can occur anytime and all of us should be prepared for it. We hope this article – Tax Benefits of having a Health Insurance helped you to learn something new.

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