April 19, 2024

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Not just 80C: You can claim Rs 75,000 as deductions with health insurance premiums too | Personal Finance

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 If you haven’t already, consider utilizing health insurance to save on your taxes this year. Here’s how:


The government offers a tax deduction under Section 80D of the Income Tax Act for health insurance premiums. This means you can reduce your taxable income by the amount you pay for health insurance, potentially lowering your tax liability.


Here’s a breakdown of the deduction limits:


  1. Self, Spouse, and Dependent Children: Up to Rs. 25,000 per year

  2. Parents (Senior Citizens – Age 60 or above): An additional Rs. 25,000 per year (Rs. 50,000 in total)

  3. Parents (Below Age 60): Up to Rs. 25,000 per year (if covered under your policy)


This tax deduction applies to everyone, regardless of your income bracket. So, whether you’re a salaried professional, a self-employed individual, or a senior citizen, you can benefit from his tax-saving opportunity.


The benefit of 80 D is in addition to Section 80 C i.e. deductions on various investments up to Rs 1,50,000/-.


“Any individual or Hindu Undivided Family can take the benefit under 80 D of the Act which shall cover medical insurance premium for individual or HUF and medical expenses incurred for senior citizens. Under 80 D, the deduction is Rs 25, 000 for individuals and Rs 50, 000/- for senior citizens.


Example: If Mr. X takes a Health Premium Policy for 25,000 and Rs.50,000/- for his father ( Senior Citizen), the deduction would be Rs 75,000,” explained Alay Razvi, Partner, Accord Juris LLP.


The amount of tax one can save by paying health insurance premiums depends on age and the total premium paid.


“For example, Individuals below 60 years old can claim a tax deduction of up to Rs 25,000 per financial year on health insurance premiums paid, however, for a Senior Citizens (individuals aged 60 years and above) the tax deduction limit increases to up to Rs. 50,000 per financial year. It is vital to note that the deduction about health insurance premiums is only available under the old tax regime. Per contra, the new tax regime offers lower tax rates but eliminates several deductions, including the one for health insurance premiums,” said Sandeep Bajaj, Advocate, Supreme Court of India. 


An individual’s annual income: Rs. 5,00,000


Deduction limit under Section 80C (e.g., PPF, ELSS): Rs. 1,50,000


Scenario 1: No health insurance premium payment


Taxable income: Income – Section 80C deduction


Taxable income = Rs. 5,00,000 – Rs. 1,50,000 = Rs. 3,50,000


Let’s assume tax rate in this bracket is 30% (This would depend on the actual tax slab)


Tax payable without health insurance = Rs. 3,50,000 * 30% = Rs. 1,05,000


Scenario 2: The maximum deduction limit allowed for you including your spouse and children is Rs 25,000. Moreover, you can claim a deduction of up to Rs 25,000, for your parents, if they are below the age of 60.


Example: Rohit is 30 years old and pays a premium of Rs 20,000 on his Health Insurance policy and Rs 10,000 for the Health Insurance premium of his spouse. Moreover, he also pays a premium for a Medical Insurance policy of Rs 35,000 for his father who is 55 years of age.


In such case, the maximum deduction Rohit can claim under section 80D is


Actual expense:  Premium paid for self and spouse is Rs 30,000


Maximum allowed limit (in INR) is Rs 25,000


Premium paid for his father is Rs 35,000


Maximum allowed limit is Rs 25,000


Although Rohit paid Rs 65,000 towards insurance premiums, he can only avail a deduction of Rs 50,000, which is the permissible tax benefit.


Taxable income calculation


Rohit’s gross income: Rs 5,25,000


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

Taxable income: Rs 4,75,000


Scenario 3


If your parents are above 60 years of age, the exemption limit that you can avail for them is Rs 50,000 along with your deduction limit of Rs 25,000.


Example: Vivek is 50 years old and pays a premium of Rs 22,000 for a Health Insurance policy. He also pays a premium for the medical insurance policy of Rs 45,000 for his mother who is 70 years old.


Let’s look into the amount of tax benefit he can avail under section 80D


Premium paid for self is Rs 22,000. The maximum deduction allowed for self here is Rs 25,000.


The premium paid for his mother is Rs 22,000. Since she is above the age of 60, he can claim up to Rs 50,000.


Vivek can claim the whole amount of insurance premium paid of Rs 67,000 as a deduction under 80D, as it is within the allowed limit of Rs 75,000

“Section 80D also allows availing of an additional deduction of Rs.5,000/- on expenses incurred for preventive health check-ups. In total, taxpayers can claim up to Rs. 1 lakh in deductions u/s 80D for premium paid towards health insurance premium for themselves and parents,” said Vipul Jai, Partner, PSL Advocates and Solicitors. 


If you and your parents, both are above the age of 60 years, you can avail of a tax benefit for a maximum limit of Rs 1,00,000 (Rs 50,000 each, for you and your parents) Example: Ramesh is 61 years old and pays an insurance premium of Rs 45,000 for himself and his son. He also pays a Health Insurance premium of Rs 65,000 for his mother who is 78 years of age.


Premium paid for self and son is Rs 45,000


Maximum allowed limit  is Rs 50,000


Premium paid for his mother Rs 65,000


Maximum allowed limit is Rs 50,000


Although Ramesh has paid Rs 1,10,000 towards the insurance premium for himself, his son and his mother, he can claim a deduction of only Rs 95,000 (45,000 + 50,000) under Section 80D.


Key takeaways:


  1. Premium amount paid towards the Health Insurance of you and your family including your parents can be claimed as a tax deduction from your taxable income. However, the maximum deduction amount you can claim is based on your age.

  2. You can claim a deduction under Section 80D for health insurance premiums paid for yourself, spouse, dependent children, and parents.

  3. This deduction is separate from and in addition to the deduction you can claim under Section 80C for investments like PPF and ELSS.

  4. By paying your health insurance premiums, you can potentially lower your taxable income and reduce your tax liability.

  5. The premium payment must be made through a non-cash mode (credit card, debit card, online transfer, etc.).

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