Tax Benefits on Mediclaim / Health Insurance Premium

What is the Quantum of Tax Deduction for Health Insurance premium?

The Income Tax Benefit under section 80D is available based on the age of the insured individual. The benefit can be claimed under the following categories:

• If age of the Individual / Spouse or Dependent children is below 60 years, maximum deduction that can be availed is ₹25,000 a year.
• Further the individual is also allowed to claim tax benefits towards the health insurance premium paid for his/her parents. Again based on the age of the individual’s parents, whether dependent or not is eligible for tax deduction subject to the maximum amount of ₹50,000 a year, if your parent’s age is > 60 (senior citizen).
• If however, the age of the parent is < 60 years, the Income Tax Act allows a deduction of maximum amount of ₹25,000 a year.
• Tax deduction allowed to an individual under section 80D shall be the aggregate of the above two limits. Hence if the individual is paying premium for both himself and his parent, he becomes eligible for an allowed deduction of ₹50000 (₹25,000+₹25,000). Similarly, if the individual is > 60 years and is paying health insurance premium for parents, the maximum tax deduction allowed will be ₹100,000 (₹50,000+₹50,000 as both are senior citizen).
• Tax Deduction on Preventive Health Check-ups is limited to ₹5,000 but over and above the current ceiling of ₹25,000 / ₹50,000 as per one’s eligibility for both parents and the individual’s family.
• According to the new rules introduced in Budget 2018, if you have made a lump-sum premium payment in a single year for a health policy valid for more than one year, you can claim a deduction up to ₹50,000.

Table showing Maximum Amount of Tax Deduction U/S 80D

Insured’s Details	IT Deduction under section 80D	Exemption for Preventive Health Check Up	Total Eligible Tax Deduction
Self + Family	₹25,000	₹5,000	₹30,000
Self + Family + Dependent Parents < 60 years	₹25,000 + ₹25,000	₹5,000	₹55,000
Self + Family + Dependent Parents> 60 years	₹25,000 + ₹50,000	₹5,000	₹80,000
Self (>60 years) + Family + Dependent Parents> 60 years	₹50,000 + ₹50,000	₹5,000	₹1,05,000

Tax Planning using Health Insurance – as the table above suggests, it is important to be prudent about one’s finances by using the available benefits of Income Tax deductions while protecting oneself and one’s family with health insurance. As an individual one can save upto ₹30,000 per year on tax and if you include your parents, it could potentially be a tax saving upto ₹80,000 per year. So how does one plan for their finances with Health Insurance? Here are a few straightforward ways to plan your Health insurance effectively:

• Understand the section 80D and its benefits first – many persons are not aware of this section and it’s benefits. If one does go through this section, you will be aware that as an individual (<60 years), you can avail benefits upto ₹30,000 inclusive of a Preventive Health check up. Hence invest in a Health insurance policy for you and your family with a premium of atleast ₹25,000 and also buy a Health Check up policy. If one buys a policy with a premium of ₹18,000, then one is losing the benefit under section 80D and will be able to save less tax.
• Both Spouses are Earning, Both can claim deductions - If both the individual and their spouse are earning members, then both can claim a tax deduction by buying health insurance under their respective income tax returns. This can lower the taxable income for the family as a whole because of double benefit upto ₹50,000 (assuming both are <60 years). So purchase health insurance plans by splitting the purchase between both spouses.
• Buy a Health Insurance Policy for your Parents – Even if your parents are not financially dependent on you, ensure they are covered sufficiently under Health Insurance by investing in a comprehensive insurance plan. You must understand that for parents (assuming they are > 60 years), they are eligible for a deduction upto ₹55,000, inclusive of a Health check up. This will save tax on your hard earned money and provide protection to your parents.
• Invest in Preventive Health Check up – One case avail a benefit of upto ₹5,000 by purchasing this for you and your parents. Please note that once can avail a benefit of a maximum of ₹5,000 if you are insuring yourself, your family and your parents. Again there is a dual purpose of this investment. One, you can genuinely assess the individual health status of each member of your family on an annual basis and secondly, you can save some money also while filing your taxes.
• Don’t Pay Cash for your insurance premium – Under the section 80D, one must be aware that if the Health insurance premium is paid in cash, then the same cannot be claimed as a deduction while filing one’s returns. Ensure payment through a cheque, demand draft or NEFT. You will lose this opportunity to save money by paying premium in cash.
• Health Insurance for Very Senior Citizens – This section also provides coverage towards medical expenses of very senior citizens (> 80 years of age) who are not covered under any type of health insurance policy. One is eligible to claim a deduction up to ₹30,000 for each financial year.

So while the primary objective of availing Health Insurance should always be protection during a health emergency, one must also be aware of the available benefits that can be accrued by way of income tax deductions as well.