July 22, 2021

In today’s economy, households are struggling to save upon costs. One of the biggest concerns that come in the way, along with other financial costs, is that of taxes. It’s a well known fact that the handling of taxes requires careful and intelligent consideration and is best left in the hands of expert consultants. One of the easiest ways of refraining from paying a considerable amount of taxes is by getting adequate health insurance in place. Well, at the very onset, this may sound strange as the common perception regarding health insurance is that it helps in hospitalization and other medical expenses; but then, there is more than what meets the eye.

The imperative need for good health insurance was and is not lost on the Indian Government. This has been highlighted in the Income Tax Act 1961 where health insurance is deemed as a necessary investment by an Indian citizen. For this reason, under its Section 80D, citizens can enjoy deduction in taxes if they are availing health insurance for themselves, their spouse, children, or dependent parents.

Understanding the Rules of Section 80D

Firstly, you need to know that the deduction in your taxes through Section 80D is through health insurance, and not through life insurance policies. However, there is little cause for worry as life insurance policies help you enjoy Tax saving Instruments under Section 80C of the Income Tax Act 1961. All benefits available under Section 80D are exclusive and separate from the ones that are allowed under Section 80C.

Tax Deductions on Health Insurance Policies

An individual using Health insurance for himself/herself or his family can get access to beneficial tax deduction to ensure timely payments of health insurance policies. The term ‘family’, in this case, refers to parents, children and spouse. You should remember that tax deduction is applicable only if the policy is taken through an insurer approved by the Insurance Regulatory and Development Authority of India

For Hindu Undivided Family (HUF), the amount deducted is payable towards the Health insurance Policy of any member of the family. Chartered accountants and tax advisors religiously advise their clients to save tax through HUF. The reason behind the same is that the income earned by all members of a specific HUF is considered as joint income, and is therefore taxed as whole.

What is the Maximum Tax Deduction You can Enjoy?

  •  Individuals: For individuals, the maximum permissible savings that can be enjoyed through Section 80D is 15,000 Indian Rupees. This will include the savings related to the spouse and children as well.
  • Senior Citizens: A senior citizen availing health insurance plans can enjoy up to 20,000 Indian Rupees. If the parents of the insured are not under the category of senior citizens, then they will be allowed a deduction of 15, 000 Indian Rupees. Here, it deserves mention that the Income Tax Act 1961 recognizes individuals with the age of 65 or more as senior citizens.

Example:- This example will help you understand all the above concepts in a better way.

Mr. Ranjit Singh is currently paying Rs. 16,000 for his wife’s medical insurance, and he pays an extra Rs. 8,000 for his two daughters. He is also paying for his parents’ health insurance plans that cost him Rs. 32,000. In this case, he will be able to enjoy tax deduction of 35,000, as he will be getting up to Rs 15,000 write off for his wife and daughters, whereas he will enjoy another Rs 20,000 benefit on his parents insurance. If his parents are below the age limit of 65 years, Mr. Ranjit will receive Rs 15,000 for his parents insurance and not Rs. 20,000.

Necessary Considerations to get Tax Benefits through Section 80D

  • Getting a tax deduction under Section 80D requires certain considerations.
  • Always make your health insurance payments through checks, debit cards and other means, never through cash.
  • Tax deduction is allowed only when taxable income is used for paying for your insurance policies.
  • You cannot claim deduction in your taxes if you have helped in paying the insurance for your siblings.
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