A health insurance policy brings twin benefits . First, it covers expenditure caused by a medical condition. Second, it gets you tax deductions, though the former should be the primary reason for buying a health plan. According to the income tax rules, under Section 80D, a deduction of Rs 25,000 per annum is available if you buy a policy to cover yourself, your spouse and dependent children. Another Rs 25,000 per annum deduction is available for parents' cover.
If health insurance premium is paid by a person who is 65 years, the limit is Rs 30,000 instead of Rs 25,000. Hence, you can claim a maximum deduction of up to Rs 55,000 (Rs 25,000 for you and your family + Rs 30,000 for parents who are senior citizens) under Section 80D. So, you can save up to Rs 16,995 if you are in the 30 per cent tax bracket.
"The point to note is that this is not part of the Rs 1.5 lakh per annum Section 80C deduction that also includes life insurance premium and employee provident fund contributions. The deduction for health insurance premium is over and above this Rs 1.5 lakh per annum limit," says Sudhir Kaushik, Co-founder and Director, TaxSpanner. com.
Here are a few things you should know before claiming tax benefits under Section 80D:
1. Apart from the premium for health insurance policy, you can also claim deduction for preventive health check-ups under Section 80D. Archit Gupta, CEO & Founder, cleartax.in, says, "A maximum deduction of Rs 5,000 for health checkups can be claimed within the overall limit of Rs 25,000 (for self, spouse and children).
" There is one more benefit . For super senior citizens (more than 80 years old) who are not insured, medical expenditure of up to Rs 30,000 is allowed as deduction.
2. You can buy a policy for your parents and get an additional deduction on the premium paid. It helps your parents as well as you, particularly if there is a gap in the cover that they require and what they have. But remember that the maximum contribution for parents cannot exceed Rs 25,000.
For senior citizen parents one can claim a deduction of up to Rs 30,000. Deductions are available even for preventive health check-ups. So, your child can pay for your health check-up and get tax deduction, but not more than Rs 5,000. Moreover, it's not that one needs to be dependent on one's children if they were to avail themselves of tax benefits. Section 80D says a child can pay for the benefits of his or her parents whether they are dependent or not.
3. Prevention is better than cure, especially when tax benefits are available on it. Do remember tax benefits are available on check-ups but only when they are preventive. You cannot get tax benefits on check-ups done during the course of treatment. If you are in the highest tax bracket and spend Rs 5,000 on these tests, you will save a tax of Rs 1,500.
4. Payment should be made by any mode other than cash in case of health insurance to get the benefits . However, for preventive health check-ups, the payment can be in cash as well, says Amit Maheshwari, Managing Partner, Ashok Maheshwary & Associates. It is always good to keep all receipts to get the benefits .
5. Service tax is charged on health insurance premium. However, this payment is not eligible for deduction. Experts say service tax must also be eligible for deduction under Section 80D. Last but not the least, don't buy a cover just to make use of the tax breaks. Don't be under insured. The tax break is just a bonus.