Are you saving enough tax?

Posted on: Mar 2, 2021 | | Written by:

Are you saving enough tax?

After the Coronavirus pandemic health insurance is no longer a push product. People finally understand the importance of health insurance in a hard way. Besides, with the rising cost of medical expenses, access to good medical facilities and hospitalization costs can be financially strenuous. Therefore, getting health insurance cover for yourself and your family can provide the added protection you need in times like these. Apart from the obvious benefit of having the financial confidence to take care of your loved ones, a health insurance plan is extremely useful when it comes to beating medical treatment inflation. When scouting for an ideal health insurance plan, you can choose to secure your entire family under the same policy rather than buying separate policies.

What is section 80D?

These are some known benefits, other lesser-known benefit is Section 80D. To promote and popularize health insurance, which is a significant cost-saver in case of health issues, there is a tax concession provided on the premium paid towards a health insurance policy by the government. Premium paid on health insurance is tax-deductible under section 80D of the Income Tax Act. Under this section, a tax deduction is provided towards health policy on individuals, spouses, and children. You can also include your parents in the policy to spread the insurance benefits and avail tax benefits. You can save up to Rs 75,000 under section 80D.

Why do you need to purchase health insurance for parents?

It’s ideal to purchase health insurance in the early 30s for a simple mathematical calculation. It is expected that the parents will be in their 50s and about to enter the senior citizen bracket. Buying health insurance for parents is useful as the medical costs are rising and with them aging they are prone to illnesses. Also with a family plan a single health insurance policy can cover the medical expenses of the entire family in one go.

Features of Section 80D

If you have paid a premium on yourself, your spouse, and a child in one financial year then you can claim up to Rs 25,000 in tax breaks. Besides, if you have paid an extra premium amount for your parents, you can claim an extra Rs 25,000 to Rs 30,000 in tax breaks, depending on the age of your parents. Meaning you are eligible for a maximum tax exemption of Rs 75,000 if you have medical insurance.
In addition to the tax break, you can get by paying the health insurance premium, you can also avail tax exemptions under Section 80DD and Section 80DDB, for any expenses incurred by you for the medical treatment which includes nursing, training, as well as rehabilitation of dependents who are disabled.

An additional amount of Rs 5,000 is exempted from the parent's annual health checkup.

However, it is mandatory to get a medical certificate from a government hospital to claim the deduction.

If the medical insurance premium is paid in cash then there is no tax benefit. Also, the payment must be paid in a form of online bank transfers, cheques, or via debit or credit cards.

What is covered under Medical Expenditure?

While the Income Tax Act 1961 does not have any definitive explanation for medical expenditure, the deduction for the same was introduced under the Finance Act, 2015. The deduction was defined for super senior citizens (individuals aging 80 years or above).
Under the Union Budget 2018, the deduction for medical expenditure for senior citizens was further increased. It was done to provide relief to senior citizens.
Going by the motive, thus, expenses such as consultation fees, hearing aids, and medicines, can be claimed as a deduction. Alongside Section 80D, medical expenditure on specific health ailments is also covered under Section 80DDB.

Let’s understand Section 80 D with some examples:

Nitin is a 38-year old professional who pays an annual health insurance policy premium of Rs. 12,000. The medical insurance covers his wife, child, and himself. At the same time, he also a health insurance for his parents (age 57 and 56 years respectively), against which he pays Rs 22,000 as an annual premium while incurring an expense of Rs 5,000 towards preventive health check-ups for the family. Total Tax savings under Section 80D - Rs 47,000 (Rs 12,000 + Rs 22,000 + Rs 5,000)

Vinit is a 45-year old businessman who has adequate medical insurance coverage for himself, his wife, and two children. The annual premium payable is Rs 27,000. Furthermore, he also pays an amount of Rs 60,000 towards his parent’s medical treatment (aging 73 and 70), who, in turn, do not have medical insurance. Total Tax Savings under Section 80D - Rs 75,000 (Rs 25,000 + Rs 50,000)

Conclusion:

Although paying tax is a mandate but it’s up to individuals how to safeguard the tax liabilities and take advantage of the tax benefits. By investing smartly in a comprehensive health insurance plan and making the most of the exemptions available to you, you can ensure that you don’t end up paying more Income Tax than you have to. Happy investing!

Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.

Save your present and future tax liabilities with health insurance

Lower your tax liabilities burden with Section 80D

Tax Benefit on Health Insurance