Here's How You Can Save Tax on Health Insurance with Section 80D

Posted on Sept, 2020

Investing in a good health insurance policy, with high sums assured, enables you to concentrate on your treatment without worrying about its costs. It offers a sense of financial and emotional relief. When you invest in health insurance policies, you also become eligible for tax exemptions or reductions under various Sections of the Income Tax Act of 1961. Here is everything you should know about saving Tax on Health Insurance with Section 80D.

When is Section 80D applicable?

To understand how to save tax with health insurance, we must first understand its applicability. As per the rules and regulations framed by the Government of India, every Indian citizen – be it an individual or a member of a Hindu Undivided Family (HUF) can avail tax deduction under 80D income tax laws. You can avail this deduction when you purchase medical insurance from your annual income in a given financial year. Apart from purchasing medical insurance for yourself, you can also avail deductions for buying the policy for your spouse and dependent children. Individuals bearing the financial costs of the parents (whether under the age of 60 or senior citizens) can avail additional deductions for purchasing medical polices for their parents as per 80D laws. The most significant advantage is that you can claim 80D medical insurance deductions over and above the deductions available under Sections 80C, 80CCC and 80CCD of the IT Act.

What are the deductions available under Section 80D?

Health insurance tax exemptions available under section 80D as mentioned, apply based on individuals purchasing the policies and HUFs. Let us first understand the applicability with reference to individuals.

  • As an individual purchasing health insurance, you may claim a maximum income tax deduction of ₹25,000 when you purchase an insurance policy for yourself, your spouse, and your dependent children.

  • In case you are also purchasing insurance policies for your parents under the age of 60 years, then you can avail an additional deduction of ₹25,000 and save tax with health insurance.

  • In case you are under the age of 60 and are purchasing insurance policies for your senior citizen parents (aged 60 years and above), then you can avail further deductions of ₹50,000, making your total tax deduction ₹75,000 per annum.

  • In case you are above 60 years of age and are paying the insurance premiums of your parents, then you become eligible to save an amount on ₹100,000 on health insurance premiums as per Mediclaim 80D rules.

HUFs investing in health insurance

As per Section 80D income tax laws, HUFs may claim tax deductions for medical insurance claims filed for any or all members comprising the HUF. The deduction amount for members of HUFs, like individual insurance buyers, depends on their age. For instance, if the age of the HUF member is under 60 years, then such members will be eligible for annual tax deductions of ₹25,000. On the other hand, if the age of the HUF member exceeds 60 years, i.e. if they are senior citizens, then such members will be eligible for tax deductions of ₹50,000 per annum.

How to save taxes on preventive health check-ups

As we grow older, we feel the need to undergo a preventive health check-up, at least once a year. Insurance providers have made provisions for policyholder to undergo preventive health check-ups too, and the Government offers tax deductions on the check-ups as well. However, you need to be aware of the rules to save tax with health insurance when you undergo annual preventive health check-ups.

Here is an example to help understand how preventive health check-ups work with reference to tax deductions

Let us say you are paying an annual insurance premium of ₹20,000 for your general health insurance policy. You go for a preventive check-up which costs you ₹5,000. In such, a case, you can avail the total amount of ₹25,000 under Section 80D.

Tabular representation of tax deductions on preventive check-ups with examples
Example Premium paid for medical insurance Expense incurred towards preventive health check up
Example 1 ₹15,000 ₹10,000
Example 2 ₹20,000 ₹8,000
Example 3 ₹24,000 ₹3,000
Example 4 ₹000 ₹7,500

As is evident from the above table, the deduction you claim does not raise your overall tax deduction limit above ₹25,000. Also, you may claim deduction under preventive health check-even if you do not have health insurance.

Points to remember
  • You can avail a maximum deduction of ₹5,000 on preventive health check-ups. The ₹5,000 limit is included within the overall limit of ₹25,000 towards the payment of health insurance premiums.

  • Individuals and HUFs can claim tax deductions for money spent on preventive check-ups for self, spouse, dependent children, and parents.

  • While you cannot avail tax benefits if you pay your health insurance premiums in cash, as per Income Tax laws; you can still avail tax deductions for cash payments made towards preventive check-ups under Section 80D.

Tax deductions on Sub-sections of 80D Income Tax Act

Apart from the deductions available for medical insurance premium 80D, you can avail further tax exemptions on certain subsections of the 80D income tax Act. They are as under:

Section 80DDB

Under Section 80DDB of the IT Act, you can utilise your general health insurance policy to seek treatment for critical illnesses. Diseases such as cancers, tumours, paralysis, Alzheimer's, heart attacks, strokes, coronary artery diseases, organ transplant, etc., are categorised as critical illnesses. In fact, over 35 diseases are recognised as critical, and members seeking treatment for these diseases can avail health insurance tax exemptions. If you are suffering from and/or are paying the health insurance premiums for yourself or family members suffering from critical illnesses, then you can avail a maximum tax deduction of up to ₹40,000. This deduction is applicable for premiums paid for patients under the age of 60 years. In case the age of the patient exceeds sixty years but is below 80 years, you can avail tax deductions of ₹60,000 per annum, and if the age of the patient is over 80 years, you can avail further tax deductions of ₹80,000 per annum for critical illness treatment. Note that to qualify for deduction under this sub-section of 80D income tax Act; you have to provide the doctor's certificate while filing your income tax returns.

Section 80DD

Another sub-section of Section 80D is Section 80DD under which you can save tax with health insurance for the treatment of dependents suffering from disabilities. In case you are paying for the health insurance policy of an immediate family member (spouse, dependent siblings, children, and parents) suffering from permanent physical or mental disabilities, then you can avail tax deductions under Section 80DD. Under this section of the IT Act, you can avail deductions of approximately ₹75,000 to ₹125,000. You may avail the tax deductions for the costs incurred to treat, nurse, and rehabilitate the dependents suffering from physical and mental disabilities.

Things to remember

As is evident, the Government offers several means through which you can save tax with health insurance. It is necessary to buy health insurance irrespective of your age. Apart from the medical insurance premium 80D tax deductions available to you, there are several other merits of purchasing insurance at a young age. Insurance premiums are generally low when you buy policies at a young age. Moreover, you can benefit from few add-ons covers that can help boost NCB up to 50% in a single year. There is usually a limit on the maximum amount that can be obtained as NCB. Since the chances of you filing an insurance claim are typically lower when you are young, you can benefit from the no-claim bonus. The bonus also helps you fight inflation as the cost of medical expenses rises in future Buying health insurance is detrimental in today's day and age. While you should consider how to save tax with health insurance and make the most of deductions available under Section 80D and its sub-sections, you must also consider your requirements and premiums payable. We, at PINC Insurance, aim to guide you in making an informed decision on your insurance purchase and promise to ensure a hassle-free any claim settlement in the future.