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Questions you have been asking about Tax Deduction on Health Insurance

Each year we all turn to health insurance as the last resort to invest our money and save on taxes. Naturally, we all have questions around the possible tax deductions. Read on to know more.

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With tax season round the corner, Ravi purchased a health insurance policy for his family. Now for tax calculation he has to provide all the correct details to his employer for tax calculation purposes. But searching on the internet for the right amount of tax deduction available against each policy can get confusing.

Well, Ravi is not to be blamed. Health insurance comes in many variants, and each variant caters to a specific risk and has a specific place in a family’s overall portfolio. Also, some of the variants come with tax deductions, which is how the Government motivates people to purchase these products.

While any regular tax-payer will know it is Section 80D of the Indian Income Tax Act that governs the tax deductions for health insurance, we are sure that there are still many questions around the whole framework.

Who can claim deduction under Section 80D?

Only an individual or a Hindu Undivided Family can claim deduction under Section 80D. The person can be a resident or even a non-resident. So, NRI’s or even foreign citizens qualify to claim deductions for health insurance.

Do all health insurance policies qualify for this deduction?

Only mediclaim and critical illness policies qualify for deductions. Premium paid for personal accident policies do not qualify for a tax deduction.

Which payments qualify for deduction under Section 80D?

  • Premium for a health insurance policy

  • Central Government Health Scheme (CGHS);

  • Cost of preventive health check-up

The payments can be made for the following relationships:

  • Self

  • Spouse

  • Dependent children (irrespective of the number)

  • Parents (whether dependant or not)

Can I claim tax deduction for health insurance premium payment for my in-laws?

No, you can only claim deduction for policies taken for your parents. In such a case, a good tax planning strategy would be that the husband and wife took policies separately for their respective parents and claimed deductions on the premium paid in their individual tax return filings.

Can I pay the premium in cash for claiming the deduction?

As far as the payment made for preventive check-ups is concerned, yes. However, for insurance premium, Section 80D specifically required that the payment has to be in a mode other than cash. So, it can be through cheque/netbanking/card (but not cash).

What is the extent of tax deduction I can get under Section 80D?

The deductions have been summarized in the following table:

For whose benefit payment can be made Slef, spouce and dependent children Parents
Medical insurance premium 25,000 25,000
Preventive Health Checkup 5,000 (included in the limit above) 5,000 (included in the limit above)
Additional Health Check up 5,000 5,000

To understand this further, let us explore the following scenarios of a family paying premium under health insurance policy:

Self, Spouse, dependent children Parents Total Deductions
Senior Citizen Deduction Not Senior Senior Citizen Deduction
NIL 25,000 26,000 NIL 25,000 50,000
32,000 NIL NIL NIL 30,000
32,000 30,000 NIL 45,000 30,000 60,000

What is the definition of "senior citizen" as per Income Tax Act?

A senior citizen is a resident individual, whose age at any time during the financial year should is 60 years or more.

If I pay advance premium for coming years in this year itself, can I claim that amount under Section 80D as well this year itself?

Yes. Deduction under Section 80D is available on ‘payment basis’, so you can claim whatever payment you have made this year (irrespective of the year it relates to). But remember that the deduction under Section 80D is subject to the above mentioned limits.

Is the tax deduction under Section 80D also available on premium for riders attached with a life insurance policy?

Premium of a policy that can be attributed towards the critical illness rider qualifies for a deduction under section 80D. However, premium for accident rider does not qualify.

Final Word

The primary objective behind purchasing a health insurance product should not to be to avail tax benefits, but to mitigate the financial risks arising out of a medical emergency. Nevertheless, availing tax deductions certainly go a long way in reducing the cost of purchase of the product. Also, one has to be aware of the tax-related aspects to make proper deduction claims while filing for income tax return.

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Aniket Thakker
Written by Aniket Thakker
He lives off TV shows, movies, junk food, comics and sarcasm. When he is not working as a freelance imaginary friend to other beings like him, he works as VP of Marketing at Coverfox.

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