Does a health insurance plan help to save tax?

Insurance
By Marvel Nat

Health insurance plan is a must-have product in your financial product portfolio. Health insurance plan for families ensure that you and your family have access to the best healthcare facilities by covering or reimbursing your expenses through successful claims when you require hospitalisation or in case of medical emergencies. At the same time, they keep your long-term savings and investment corpus unaffected by the rapidly increasing cost of medical treatment in India.

Tax Benefits From Purchasing a Health Insurance Policy

Insurance plan offers tax benefits besides the obvious and most essential benefits. So, what are the health insurance tax benefits? How does it work? Let us read a bit more about health insurance deductions in income tax. Before we go into the details, let us try to understand how health insurance plan helps simply lower your taxes. Certain expenses you incur for health insurance, like the premium you pay for your and your parent’s policies and those incurred on preventive healthcare, till a defined limit, are eligible for deduction from your taxable income, thereby decreasing your tax liability. Please note that the health insurance deduction applies to your income tax as per the Income Tax Act 1961. Apart from looking solely at the angle of tax savings, you may also explore affordable health protection plans to help reduce your medical expenses.

Note: The deductions available under section 80D are in addition to the Rs 1,50,000 deductions available under Section 80C of the Income Tax Act, 1961.

Details of Deduction for Health Insurance

Section 80D of the Income Tax Act of 1961 deals with the tax deductions from health insurance. These deductions are available for resident individuals, Hindu Undivided Families (HUFs) and Non-Resident Indians (NRIs).  The deductions from your taxable income are as per the details below:

  • Upto Rs 25,000 for self, spouse and dependent children, all below the age of 60,
  • Upto Rs 50,000 for self, spouse, dependent children and parents below the age of 60,
  • Upto Rs 75,000 for self, spouse, dependent children and parents who are above the age of 60,
  • Up to Rs 1,00,000 for self, spouse, and dependent children, any of whom are above 60, and parents above 60.

If any member is not covered by any form of health insurance, you may avail yourself of a deduction for preventive health check-ups up to a limit of Rs 5,000. This limit increases to Rs 7,000 in case the particular family member is above the age of 60. This deduction may be availed of without producing any bills, and the payment may be made in any mode, including cash.

Note: If your family members are not covered by health insurance, you may take advantage of both deductions—premiums paid for health insurance policies and preventive health check-ups.

A Hindu Undivided Family (HUF) qualifies for deductions because health insurance premiums amount to Rs 25,000, which may increase to Rs 50,000 if the Karta is over 60.

You may avail yourself of tax benefits to pay a premium for a health insurance policy if you are a Non-Resident Indian (NRI) up to a limit of Rs 25,000, provided you have purchased the policy in India.

Note: If you wish to claim any of these deductions, you must choose the old tax regime when filing your Income Tax Return (ITR).

Read more about health insurance to understand the offerings further.

What Does Section 80D Not Cover?

The following are not covered under Section 80D of the Income Tax Act, 1961:

  • Health insurance premiums are paid in cash,
  • Health insurance premiums paid for any other members of your family,
  • The GST amount that is added to your health insurance premium.

Note: If you have paid premiums for more than 1 year to avail of the discounts offered by your health insurance company, you may claim for the proportional tax deduction of the relevant financial years.

Conclusion

Health insurance is a must-have product because of its coverage, financial shield, and tax savings, which you may maximise by purchasing policies in the most efficient combination.

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