Tax Guide - How Does Health Insurance Help You Save Tax Under Various Sections?
The rising cost of healthcare facilities has made it important to have health insurance for yourself and your family. Besides financial protection against medical emergencies, a health policy helps in saving tax on your earnings. Yes, you read it right. A health insurance policy can help you big time in saving money under various sections including the 80D Income Tax Act and more.
How are Tax Savings Related to Health Insurance?
Section 80D of Income Tax Act and Section 80DDB (Treatment of Critical Illnesses) can lower your tax liability by reducing the taxable income. For example, the health insurance premium that you are paying for yourself and/or for other members of your family is deducted from your taxable income. It would not be deducted from the overall tax amount that you will have to pay. Also, the extent of tax benefits offered by Section 80D depends on the age of the person insured.
You can claim a deduction for the health insurance premium and expenses incurred towards preventive health check-ups for self, spouse, dependent children and parents. This is as per the terms and conditions mentioned in Section 80D of the Income Tax Act, 1961.
Understanding Section 80D for Health Insurance
Under Section 80D of the Income Tax Act, the premium that you pay towards health insurance coverage or medical expenditure under 80D are exempted from your income tax liability for a particular financial year. This exemption is available on individual plans as well as a family floater plan that covers you, your spouse, children and your parents. You can also save on income tax based on expenses incurred for preventive health checkup under 80D during the policy term. There are three ways to file a return:
- Claim a deduction of Rs 25,000 under Section 80D on health insurance for self, spouse and dependent children. File an additional deduction for insurance of dependent parents up to Rs 25,000, if they are less than 60 years of age. So, the total deduction is Rs 50,000.
- If the parents are aged above 60 years, the deduction amount is Rs 50,000. You can claim a total deduction of Rs 75,000, consisting of Rs 25,000 on the premium paid for self, spouse and dependent children and Rs 50,000 on the premium paid for your parents.
- If both you and your parents are senior citizens, the maximum deduction that you can claim would be Rs 1,00,000 = Rs 50,000+Rs 50,000.
To get a detailed understanding of tax deduction under section 80 D, go through the following example:
Rahul lives with his wife, daughter, and dependent parents. On the advice of his Chartered Accountant, he decides to take two health insurance policies. One policy covers Rahul, his wife, and his daughter. The other policy covers only his parents. You may consider different scenarios to understand how to save tax under section 80 D.
- All members of Rahul's family are below 60 years of age, which means none of them is a senior citizen.
In this case, Rahul will get a total income tax deduction of Rs 40,000. He will get a deduction of Rs 20,000 for each policy.
- Rahul's parents are senior citizens
In this particular scenario, Rahul will be eligible for Rs 20,000 deduction on the first policy, as in the earlier case. Since his parents are senior citizens, he will get Rs 30,000 deduction on the second one. So, his overall tax deduction will be Rs 50,000.
- Rahul is a senior citizen and so are his parents
For both policies, Rahul will get a deduction of Rs 30,000 each. Hence, the total tax deduction for him would be Rs 60,000.
|
Scenario |
Deduction Limit for Self, Spouse and Children (Rs) |
Deduction Limit for Dependent Parents (Rs) |
Deduction under 80D (Rs) |
| All members below 60 years | 20,000 | 20,000 | 40,000 |
| Self, Spouse and Children below 60 years with senior citizen parents | 20,000 | 30,000 | 50,000 |
| Policyholder and parents are senior citizens | 30,000 | 30,000 | 60,000 |
This shows how tax benefits work for the individual as well as family floater plans. So, while filing your tax return this year, get a family floater health policy or individual medical insurance policies as per your need, and you will be able to save a good amount of tax on your income.
How to Save Tax with Health Insurance Premium Under Section 80D
Since, now, you have an idea regarding saving tax with a health policy, read on to know about certain ways in which you can save the tax amount payable under Section 80D.
Preventive Health Check-ups
During the policy term, you can save income tax based on expenses incurred for preventive health checkup under 80D of the Income Tax Act, 1961. The maximum limit of tax exemption is Rs 25,000 if you are below 60 years of age. For senior citizens, it is Rs 30,000. You can claim an additional benefit of coverage against preventive health check-ups of up to Rs 5,000 every year.
- Health Insurance Policy for Parents
Under Section 80D, you are eligible for an additional tax-saving benefit if you pay the premium for health coverage availed by your parent(s). This deduction is of an amount of up to Rs 50,000 per year for either of your parents aged 60 years and above.
- Tax Benefit on Cash Payment
The premium of a health insurance policy should be made through non-cash transactions. However, you can save on income tax for preventive health check-ups that were paid for in cash.
- Eligibility for Income Tax Deduction u/s 80D of ITA
The premiums that you pay towards health insurance coverage are exempted from your income tax liability for a particular financial year. If you have a
family floater health insurance plan that covers you, your spouse and children, dependent parents, then the premium payable will reduce your income tax liability.
- Health Insurance for very Senior Citizens
The medical expenses of senior citizens who are above 80 years of age and are not covered under any type of health insurance policy are eligible for tax deduction up to Rs 30,000 per financial year.
Health Insurance Tax Exception under Section 80D
You cannot claim health insurance tax benefit under Section 80D in certain circumstances such as:
| Policy type | Scenario | Tax Benefit for Policyholder under Section 80 D |
| Health Insurance – Individual or family floater | Premium payment made through cash | None |
| Health Insurance – Individual | Health policy purchased for working children, siblings, grandparents, in-laws or other relatives | None |
| Health Insurance | Group health insurance provided by your employer | None |
| Health Insurance – Individual or family floater | Insurance plan not authorised by the IRDA or Central government | None |
Understand Tax Saving Under Section 80DDB
You can claim tax exemption under Section 80DDB for medical treatment of yourself and dependent family members who are suffering from some specified diseases. If the patient is insured with a health policy and the insurer has paid for the cost of treatment, you cannot claim a rebate on the amount received from the insurer. The diseases for which you can claim tax return are mentioned below:
- Neurological diseases where the disability level has been certified to be 40% and above.
- Dementia
- Dystonia Musculorum Deformans
- Motor Neuron Disease
- Ataxia&
- Chorea
- Hemiballismus
- Aphasia
- Parkinson's Disease
- Malignant Cancers
- Acquired Immuno-Deficiency Syndrome (AIDS)
- Chronic Renal failure
- Haematological disorders consisting of:
- Haemophilia
- Thalassaemia
New Deduction Limit u/s 80DDB for AY 2019-20
A critical illness health insurance policy can cover you for expenses of treatment due to specific illnesses such as cancer, renal failure, and cardiac disease, covered under the list of Rule 11DD. You have to compulsorily attach a certificate issued by the doctor and claim these benefits for self, spouse, parents, children and siblings. The new deduction limits under Section 80DDB came into effect on April 1, 2019.
|
Patient's Age |
Current Maximum Limit (Rs) |
Previous Maximum limits (Rs) |
| Individual (less than 60 years) | 40,000 | 60,000 |
| Senior citizen (60 year or more) | 1,00,000 | 80,000 |
Understand Tax Saving Under Section 80U
According to the Income Tax laws of India, if you or any of your family members are suffering from certain disabilities, you are entitled to tax benefits. If you are a resident of India and are certified as a person having some sort of disability by a medical authority, you can claim tax benefits under Section 80U. To be considered a disabled individual, you need to have at least 40% disability, certified by a licensed medical authority. You have to mention this in Form 10-IA. You can find the form on the Income Tax of India website.
The authorities who are eligible for issuing a disability certificate are:
- A qualified neurologist having an MD in Neurology
- A paediatric neurologist having an MD in Neurology for treating disabled children
- A civil surgeon in a government hospital
- A Chief Medical Officer in a government hospital
There can be different types of disabilities such as:
- Blindness
- Low vision
- Cured form of leprosy
- Hearing impairment
- Locomotor disability
- Mental retardation
- Mental illness
Another type of disability is a severe disability where an individual is 80% or more disabled. This type of disability includes:
- Autism
- Cerebral palsy
- Multiple disabilities
If you are disabled, you can have a tax deduction of Rs 75,000 and in case of severe disability, the amount increases up to Rs 1,25,000 under Section 80U of the income tax act, while reporting your income in the income tax (IT) return. The deduction is a flat rate irrespective of the expenses incurred in treatment or for maintenance of the disabled individual.
For claiming the tax exemption, you have to submit the medical certificate specifying the disability and the IT return according toSection 139 of the related AY. The disability certificate is valid for a specified period. Even if the certificate has expired, you can claim tax relief in the same year in which the certificate has expired. You need to submit a fresh certificate for the following year on a compulsory basis for getting further claims. Apart from these, you do not have to submit any other document or bill to prove that you are undergoing medical treatment for your disability or related costs. If you are claiming deduction under Section 80U, you can also claim deductions under other sections like Section 80C, Section 80D, and Section 80E.
There are certain cases when you would not be able to claim tax rebates under Section 80U:
- If you are claiming a tax rebate under 80U, you cannot simultaneously claim a rebate under Section 80DD
- NRI (non-resident Indians) are not eligible for benefits under 80U
The difference between tax deductions under Section 80DD and Section 80U is that 80DD provides exemptions to your disabled family members and kin if you are the taxpayer. 80U would provide deductions to you if you have some sort of disability. Section 80DD is applicable if you deposit a specified amount as an insurance premium for taking care of your dependent disabled family members. Under Section 80DD, the deduction limits are the same as Section 80U.
Features and Benefits of Health Insurance
You need a health insurance cover to secure yourself and your family members financially as lifestyle diseases are on a rise in India. Also, a medical emergency such as stroke or heart attack or a major organ dysfunction can strike all of a sudden. The features and benefits of a health insurance policy are:
If you have a family floater or individual health policy, your insurer would take care of the medical bills, without you paying anything out of your pocket. This would reduce the stress related to money matters and you can concentrate on the treatment process instead.
You may have a health cover from your employer but an additional health policy purchased from a reliable insurer would ensure that there is no shortfall of finance during treatments.
- Option of cashless or reimbursement expenses
Cashless treatment facilities are an excellent feature of health policies. Avail of the treatment at any of the network hospitals across India with which your insurer has a tie-up. The insurer would settle the bill amount with the hospital directly without you having to pay anything out of your pocket.
Now, you can claim the expenses for alternative treatments such as Ayurveda, Yoga, Unani, Siddha, and Homeopathy(AYUSH). Wellness programs and Naturopathy are also covered under health policies.
- Daycare and domiciliary treatments
You can get financial coverage for a range of medical expenses which would not require the patient to get hospitalised for 24 hours under daycare treatments. Domiciliary treatments consist of treatment at home under the doctor's advice such as during a bone fracture.
- Pre and post-hospitalisation expenses
These medical expenses are covered up to a certain period depending on the conditions mentioned in the policy document.
There are preventive, full-body health check-ups free of cost for the policyholders once a year. This would make you aware of any health problem or illness from which you or your family member could be suffering.
What is Required to Buy Health Insurance Online?
Buying health insurance online is easy and does not involve the need for a broker or agent. You can complete your purchase from the comfort of your home. To buy a health policy, you must upload soft copies of certain documents on the insurer's website for them to check your credentials. The documents that you require to buy health insurance include:
Since the health insurance premium depends on a person's age, the insurance company may ask for your valid age proof before issuing an insurance policy. Documents that an insurer may consider as valid age proof includes the birth certificate, PAN Card, Voter's Identity Card, Driving Licence, and Passport.
An insurer issues the health policy in the name of an individual policyholder or a group of people as in the case of group insurance policy in an organisation. So, they may ask you for identity proof for authentication. The documents that you can submit for this purpose include Aadhaar Card, PAN Card, Driving Licence, Passport, and Voter's Card.
Insurance companies would require your permanent residential address as part of their documentation process. You can submit certain documents such as your ration card, telephone or mobile bill, electricity bill, passport, Voter's Car or bank a/c statement as address proof. Note that these documents should contain your name even if it is as a joint a/c holder in case of bank accounts or electricity bills. If your name is not mentioned, you should submit a supporting document or an alternate stand-alone document.
This is compulsory for most insurers. You may have to upload a scanned copy of your recent passport-size photograph.
This is not compulsory for all plans. In some cases, you may have to submit your medical check-up reports, especially if you are above the age of 45 years.