Health Insurance and Its Tax Benefits
Ask any financial planner and they will tell you that one of the first steps to take while making any provident financial plan is to guarantee that you have adequate health insurance. A premium paid in regards to a health insurance policy for parents, family members or yourself not only provides financial aid in case of medical emergencies, but it also reduces the liabilities you have in terms of tax.
Health insurance is the baby step that must be taken for yourself and your loved ones, even before thinking of larger financial goals. There’s a tax benefit to be made on the premium paid for a health policy. The benefit stems from the fact that your taxable income is reduced, hence your tax liability decreases. Here are some important facts to know about health insurance tax benefits as per income tax laws .
Under section 80D of the Income Tax (IT) Act, the premium paid toward a health policy for your parents is qualified for a deduction. This benefit is made available on a health insurance premium paid on behalf of dependent children, a spouse or self. /
Is there a cap on the tax benefit?
The amount of the tax benefit is subject to some conditions. This is dependent on the age of the person who is insured medically. Given the age of an individual is not above 60 years, the maximum deduction that can be utilised is Rs. 25,000 per year. Given the age of an individual is above 60 years, and the individual is a senior citizen, then the maximum deduction that can be utilised is increased to Rs. 30,000 per year.
For instance, if you pay Rs. 25,000 as your premium and Rs.30, 000 as premium for your senior citizen parents, you can claim tax benefit of Rs. 55,000 (sum of both plans).
Within the maximum limit of Rs. 25,000 (Rs. 30,000 for senior citizens), preventive health check-ups receive a benefit of up to Rs. 5,000. What this implies is that, if you pay a premium of Rs. 15,000 towards a health insurance policy and receive a health check-up that costs Rs. 4,000, a grand total of Rs 19,000 could be availed of under section 80D of the IT Act. However, if you pay a premium of Rs. 28,000, and you receive a health check-up that costs Rs. 3,000, the maximum deductible will still only be only Rs. 30,000, assuming you are a senior citizen.
Mode of payment
You have the facility to pay a health insurance premium in cash. However, income tax rules do not allow tax benefits on policy premiums paid in cash. So, to utilise the tax benefit, you could pay by credit card, draft, cheque or Internet banking to avail of the tax advantage on a premium. An exclusion to the rule is made with regards to preventive health check-ups, as cash payments for these check-ups are eligible for the benefits under section 80D.
It is well intentioned to know that one should not invest in insurance with the sole purpose of saving on taxes. Insurance has a myriad number of benefits that you can take advantage of. So, buy insurance and stay insured to create a better future for yourself and your loved ones. What’s more, HDFC Life has a number of insurance policies that can be tailored to meet your specific needs. Remember, it's always best to get insured and then stay insured.