Know How You Can Make the Most of Tax Benefits on Health Insurance
Published On Mar 17, 2019 5:30 AM By Yamini Sharma
In today’s time, there is a vast increase in the number of health insurance policyholders in India. Needless to say, people are becoming aware of the importance of health insurance. After all, health insurance not only provides one with countless benefits, but also the much desired peace of mind when it is required the most.
The ultimate need of the hour, health insurance is the perfect solution using which an individual can ensure their financial security in case of a medical emergency. In other words, health insurance is the ideal way one can rely on to keep their hard-earned money from going down the drain within no time during a medical emergency.
Nonetheless, is a health insurance Plan only about ensuring financial protection? Absolutely not!
When you buy health insurance, you not only secure your lifelong savings from getting misspent on rising medical costs, but also reap tax benefits. How? Let’s learn more in detail!
Tax Benefits & Health Insurance
First and foremost, learn that premium that is paid towards health insurance for self, family, and parents plays a significant role in minimizing the taxable income and thereby, the tax liability. Being an efficient tax saving tool, health insurance offers the insured individual with substantial tax exemption under Section 80D of the Income Tax Act.
According to the Section 80D of Income Tax Act:
- A policyholder can save tax on health insurance for their parents, irrespective of the fact that the parents are dependent or not.
- A deduction of Rs. 25,000 can be claimed for insurance of self, spouse, and dependent kids.
- An additional deduction for insurance of parents can be availed to the extent of Rs 25,000 if they are less than 60 years of age or Rs 50,000, in case parents are more than 60 years old.
- If the age of a taxpayer or their parents is 60 years or above, the maximum deduction available is to the extent of Rs. 100,000 under this section.
- From FY 2015-16, a cumulative additional deduction of Rs. 5,000 is permitted for the amount spent on preventive health-check up to individuals.
That being said, does your annual income fall under tax liability?
Have you invested in a health insurance policy or are considering the purchase of one?
If that’s the case, rest assured you will be able to claim income tax exemption to a particular extent!
However, don’t forget to go through all the exclusions to have a clear understanding before making any final decision.
Exclusions in Section 80D Income Tax Act -
Premium Payment Mode: There is NO TAX BENEFIT ON CASH PAYMENT. It is recommended that you pay medical insurance premium by the means of online banking, draft, cheque, debit card, credit card, and other modes as tax reduction is not an option for those who rely on cash installment payment. As an exception, installments for preventive health checkup are allowed to be paid in cash.
Service Tax: Taxpayers cannot reap tax benefits on the Service Tax and Cess charges that are levied on the payment of the premium. SERVICE TAX IS CHARGEABLE ON THE PAYMENT OF HEALTH INSURANCE PREMIUMS. The amount is 14%.
Group Health Insurance Policies: Policies like such are not liable to gain tax benefits according to Section 80D. If only the tax payer chooses the make extra payments of premium to enhance the group cover, they can claim reduction for the amount, which is extra.
Tax benefits on health insurance help one secure additional savings. However, there are a few aspects that one should consider in advance. The list includes:
- The range of claiming tax benefit on the health insurance premium is a significant element to consider. Do not forget that the Section 80D allows claim tax benefits up to a particular limit, and that too based on the age of the insured individual.
- The amount of tax saved as per their annual premium.
- The requirement of preventive health check-ups for availing an additional tax benefit.
- Different types of health insurance plans that offer tax benefits are also considerable. If you think that only indemnity based plans offer tax benefits, it’s not the case. Plans with defined benefits also help one reap tax benefits. Remember, premium paid for indemnity plans (mediclaim policies) and defined benefit plans (daily hospital cash or critical illness plan) allow one to enjoy tax benefit under Section 80D.
- Premium paid towards life insurance companies, as one can also buy health insurance from life insurers. The best part is that the premium paid for critical illness or any other health insurance rider under a life insurance policy also qualifies for tax exemption.
- Payment of premium by any means other than cash. Options such as net banking, cheque, draft or credit cards qualify for the tax benefits. It is important to be aware of the fact that cash payment helps only if the insured opts for preventive health check-ups and claiming tax benefits.
- The need to buy separate health insurance plan for parents.
Tax benefit is a prime advantage that attracts many individuals to invest in health insurance. Now that you too know the prominence of tax benefit in making health insurance policies better, don’t waste any more time. Go ahead and choose the best health insurance policy to stand firm against skyrocketing medical costs, secure your savings, maintaining the peace of mind, and last but not the least, qualify for tax benefits.
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