Here Is How You Can Save On Tax by Availing Health Insurance
Premium paid towards health insurance for self, family and parents not only provides financial help in case of medical emergencies but also reduces tax liability. Here’s how.
One must get adequate health insurance cover for self and family even before starting to save for one’s goals. What’s more, the premium you pay for health insurance provides tax benefit by reducing your taxable income and thereby your tax liability. Here are some vital points to know about tax benefits of health insurance plans as per the current income tax laws.
- The premium paid towards health insurance policies for your parents qualifies for deduction under Section 80D of the Income Tax Act. The benefit is available to individuals on health insurance premium paid for self, spouse, children and also parents. Importantly, it does not matter whether the children or parents are dependent on you or not.
- The majority of tax benefit, depends on the age of the individual who is medically insured. On the premium paid for self, spouse, children and parents, the maximum deduction that can be availed is Rs. 25,000 a year, provided the age of the individual is not above 60.
- If the premium paid by an individual is towards health policy for his or her parent who is a senior citizen of age 60 or more, the maximum is capped at Rs. 30,000. A taxpayer may therefore maximize tax benefit under section 80 (d) would therefore be a total of Rs. 60,000.
NOTE: The Section 80D tax benefit is on the premium paid towards health policy and therefore does not restrict one to buy health plan only from health insurance companies. The premium paid towards critical illness or medical insurance riders also qualifies for tax benefit under the same section.
- Within the maximum limit of Rs. 25,000 or Rs. 30,000, the preventive health check-ups get a benefit of up to Rs. 5,000. This means, if you pay premium of Rs. 20,000 towards Mediclaim and undergo a health check-up costing Rs 5,000, the total of Rs. 25,000 can be availed under section 80D. Most hospitals offer preventive health checkup packages.
With the rise of sedentary lifestyle, it’s always better to keep an eye on one’s health.
- Both ‘indemnity’ and ‘defined benefit’ are the kinds of plans that health insurance would qualify for tax benefit. (Indemnity plansallow you to direct your own health care and visit almost any doctor or hospital you like. The insurance company then pays a set portion of your total charges).
- One can avail tax benefits on the indemnity plans such as individual health insurance plan and family floater plans. Also, defined benefit plans such as daily hospital cash plan and critical illness plan of any standalone health insurance company would qualify for tax benefit.
- No tax benefit on premium paid in cash. One may however pay by Internet banking, cheque, draft or even by credit card to get tax advantage on premium. However, cash payment for preventive health checkup is eligible for section 80D benefit.
Conclusion: It’s often said that one should not invest merely for saving taxes. In case of health insurance (which anyhow is not an investment), premium paid not only gives you health cover but also aids in saving taxes. In view of the rising hospital costs, buying a health insurance is a must.