Get Tax Benefits by Investing in Health Insurance Policies under Section 80D! Here’s How

Dec 03, 2018 | 1 week ago | Read Time: 4 minutes | By iKnowledge Team

Using Section 80D of the Income Tax Act 1961 to save tax is very well known, but under Section 80D, you can get a deduction for investing in health insurance for your entire family and your parents.

Prakash enjoyed filling up forms at the end of the year and getting deductions. His company’s payroll department was very proactive about collecting supporting documents for various deductions. Since Prakash religiously invested in PPF, and life insurance, he had supporting documents to match. But he wondered why his taxable income was always higher than his colleagues who didn’t meet their investment limits under Section 80C of the Income Tax Act, 1961. When he inquired with them, he learned about a deduction on Health Insurance which he had no idea about.

Like Prakash, several people in India are not aware of how to save tax by investing in health insurance plans. The awareness for health insurance in India is abysmally low.

To give an impetus to people to invest in health insurance plans, the Government introduced Section 80D giving deductions on an investment made in a health insurance policy.

Aegon Life’s post explains how health insurance can help save tax.

What is Section 80D of the Income Tax Act, 1961 and how can it help you save tax?

Section 80D allows a deduction from taxable income when an investment has been made in a health insurance plan. The section does not discriminate between the type of health insurance plans. It allows a deduction for expenditure for self, spouse, dependent children, and even parents.

This means an individual can buy a health insurance plan for himself, his parents, and his dependents and get a deduction for that under this section. The section is liberal and has no conditions about the policies. One can buy a Mediclaim policy, a cancer policy, and a family floater, and still get the deduction under the section. There is no limit on the number of policies or providers. For example, if someone purchases a family floater policy, and a critical illness insurance, like Aegon Life’s iCancer insurance, he will get a deduction for both under Section 80D. Aegon Life’s iCancer Insurance provides staggered benefits depending upon the stage of cancer, and assured payouts to help with medical treatment.

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Section 80D allows a deduction of Rs. 25,000 for total premium paid for self, spouse and dependent children. An additional deduction of Rs. 25,000 is available for premiums paid for parents. This limit includes amounts spent on preventive health checkups.

 

What are preventive health checkups?

The section also provides a deduction for preventive health check-ups. Although the term ‘preventive health check-up’ is broad, it includes any type of check-ups. Many hospitals give an exhaustive health check-up, and if any amount has been paid towards this, it is allowed as a deduction. Any amount paid for preventive health check-up of an individual, spouse, children, and parents are allowed as a deduction.

 

The amount allowed as a deduction for preventive health check-up is Rs. 5,000. So, if someone spends on health checkups for the entire family, Rs. 5,000 will be allowed as a deduction for self, spouse, and children. An additional Rs. 5,000 will be allowed as a deduction for health check-ups for parents.

 

Deduction for Senior Citizens:

Section 80D offers an enhanced deduction for senior citizens. If either the policyholder or his parents are a senior citizen (above 60 years), the deduction amount is Rs. 50,000. 

 

Modes of Payment:

To ensure there is a paper trail for the health insurance policy, Section 80D allows a deduction only if the policy has been purchased via:

 

  1. Online Banking modes such as Net Banking/NEFT/RTGS
  2. Cheque
  3. Demand Draft
  4. Credit or Debit Cards

 

The section does not encourage payment in cash. If any investment is made in health insurance plans in cash, it is not allowed as a deduction.

 

Ashish (34) lives with his wife, Priya (30), and their daughter Rakhee (2). Ashish’s parents aged 60 and 62 years respectively, live with them. Ashish paid Rs. 25,500 for a family floater for himself, his wife, and his daughter. He bought Aegon Life’s iCancer insurance for his parents because his father is a cancer patient, and a Mediclaim policy, worth Rs. 60,000 for both. He paid Rs. 12,000 as preventive health checkups for the entire family. 

 

Let us examine how much deduction he will get under Section 80D.

 

Amount paid

Deduction as per Section 80D

Deduction allowed

For Self, spouse, and daughter

25,500

20,000

20,000

For senior citizen parents

60,000

45,000

45,000

Preventive health checkup:

 

 

 

●        Self and spouse

5,000

5,000

5,000

●        Parents

7,000

5,000

5,000

 

 

 

 

Total for self, spouse, and daughter

30,500

25,000

25,000

Total for senior citizen parents

67,000

50,000

50,000

 

 

 

 

Grand total:

97,500

75,000

75,000

 

Note: The deduction under Section 80D of Rs. 25,000 and Rs. 50,000 include the amount of preventive health checkup.

Investing in a health insurance policy is very important to protect oneself against medical uncertainties. It provides a safety net in case of emergencies and saves the retirement funds from being spent in treatment. By using the deduction under Section 80D, it is possible to save tax, and ensure a less stressful future in case of emergencies.

II/Oct 2018/4489


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