Health insurance premium paid for self, parents, and family safeguards you from exorbitant medical costs and reduces tax liabilities as well.
It is imperative to get adequate medical insurance cover even before planning to save for one’s goals. What’s more, the premium paid also provides tax benefit on health insurance policies purchased for self, parents, and family. That is why financial planners suggest investing in a health insurance policy, as it will serve the dual purpose of tax saving and health risk cover.
Tax deduction is important because the income tax paid by the citizens is the main source of revenue for the government. It’s every citizen’s duty and responsibility to pay taxes, as this money is utilized by the government to provide benefits in return. Therefore, paying income tax and filing income tax returns while maintaining savings is one way of doing that.
While the government assumes its people to file ITR, it also gives provision to legally save the hard earned money with various tax saving schemes and health insurance is one of them.
Under the income tax act of 1962, citizens who have taken a health insurance policy are allowed to enjoy the tax benefits under Section 80D. The exemption is applicable to health insurance policies purchased for self and the family (irrespective of the dependency).
As per the prevalent rules in 2018, senior citizens/parents above 60 years can save up to 100,000 rupees. And if the age of the parents is lesser than 60 years then one can avail tax exemption up to 50,000 rupees (increased from 35000 rupees last year).
Tax exemption limit against premium paid for children, spouse and self is available to the extent of 25,000 rupees.
Simply provide the policy details and choose deduction under section 80D and that amount will not be deducted under TDS.
Who can claim the tax benefit for AY 2018-19?
Tax deduction under Sec. 80D is available to an individual or a HUF.
However, the quantum of the tax benefits varies with the age of the insured person and the number of family members who are dependent on you. As the income varies, the tax slab also varies, and as the income increases, the tax rates also increase.
Though the taxable income also varies, for different slabs, there are different exemptions and deductions for all the taxpayers which can be used to reduce the income tax liability.
Five crucial things to know about tax benefit on health insurance policies under the purview of the Income Tax laws for FY 2018-2019:
1. Tax Benefits on Preventive Check-ups: One more way to save on the medical costs and the income tax is to carry out the preventive health check-ups. A taxpayer is allowed to avail tax deduction on the expenses incurred for preventive health check-ups. However, most of the people miss out claiming the tax benefits on such expenses and end up paying the money from their own pockets.
As per the budget 2018, a taxpayer is entitled to avail tax benefits up to Rs. 5000 (from the overall limit of 25,000/30,000 rupees against the amount paid for preventive health check-ups.
2. Tax Saving on high OPD, diagnostic costs: Apart from the normal hospitalization costs, the expenses incurred on OPD (out-patient department) consultation and diagnostic tests are also recompensed in a health insurance policy.
Unlike other medical expenses, where payments need to be done via cheque, draft or internet banking, one can claim income tax exemption for preventive health checkup on cash payment as well.
3. Higher Tax Benefit on Health Insurance for Senior Citizens: The deduction limit on medical insurance premiums for senior citizens has been raised to 50,000 rupees from 30,000 rupees. And the deduction limit for of expense incurred on specific illnesses of elderly people has been to Rs. One lakh.
4. Exemption on Rehabilitation of Handicapped Dependent Relative- A resident individual or a HUF can avail this benefit. Under this, expenses incurred on healthcare treatment of a handicapped dependent relative including training, nursing, and rehabilitation are eligible for tax benefits.
It includes premium paid for health insurance policy for maintenance of such a relative.
If the degree of disability is between 40 to 80 percent – tax exemption is available to an extent of 75,000 rupees.
In case the disability is more than 80 percent a fixed deduction of 1, 25,000 rupees is applicable. In the FY 2018-19, the limit has been increased from 50,000 rupees to 75,000 rupees and 1,00,000 rupees has been raised to 1,25,000 rupees.
However, to claim tax deduction once needs to furnish a disability certificate from the prescribed medical authority.
5. Single Premium Medical Insurance Policies– A new provision has been introduced in the budget 2018 regarding tax deduction against single premium medical insurance policies.
Under the purview of the new provision, if the payment for health insurance premium for a multi-year policy is made in the lump sum by the taxpayer in a single year, he/she is eligible for a tax deduction under Section 80D. However, the deductible amount will be derived by dividing the amount of lump sum premium paid, by the policy term. However, it will be subjected to the limits of 25,000 or 50,000 rupees as the case may be.
Simply put, with a health insurance policy once can avail the following benefits-
· Easy access to quality healthcare services
· It offers health cover and protects the family members from financial strain
· Tax exemption benefits under section 80D
In a Nutshell
It’s often said that one should not just make investments in order to save taxes. However, a health insurance policy is not only an investment option, but the medical insurance premium paid not only provides health cover but also provides tax saving benefits. In view of the dramatically rising medical costs buying a health insurance policy has certainly become inevitable.