Understanding Section 80D of the Income Tax Act and Its Benefits on Health Insurance

Health insurance is undoubtedly a boon.

It provides one with not only financial security during a medical emergency, but also the much-desired peace of mind. After all, it’s not easy for an individual without a health insurance to gather a significant sum at once or sell their assets to gain finances and support the medical treatment required during a unexpected medical situation.

All in all, it can be said that the benefits that health insurance brings with it are alleviating in every which way, which is why every individual in today’s time opts for a health insurance plan that suits their needs the best.

Talking about advantages of health insurance, they are myriad, out of which tax benefit is the major one.

Let’s find out why.

Health Insurance & Tax Benefits under Section 80D of the Income Tax Act

Health insurance is an efficient tax saving tool. Why? It is because it provides the insured individual with substantial tax exemption on premiums made for health insurance for the security of themselves and their family members, under Section 80D of Income Tax Act, 1961.  

Under Section 80D of Income Tax Act, one can avail tax deduction if they have paid premium for:

• Self
• Spouse
• Dependent children
• Parents (Need not be dependent)

Types of Deductions

• Health insurance premium paid for self and family
• Health insurance premium paid for parents
• Preventive health checkup expenses
• Medical expenses of super senior citizens

Note that HUF or Hindu Undivided Families are also eligible to claim deductions under this section. The premium payments made by any member in a Hindu Undivided Family can be used for tax deduction, which is, however, subject to an upper limit as per the act.

Under Section 80D of Income Tax Act, 1961:

• A policyholder can save tax on health insurance for their parents, irrespective of the dependency of the latter.
• A deduction of Rs. 25,000 can be claimed for insurance of self, spouse, as well as dependent kids.
• An addition deduction for insurance of parents can be availed up to Rs 25,000 if they are less than 60 years of age or Rs 50,000, in case they are more than 60 years old.
• Taxpayers, 60 years or above with parents of 60 years or above can available deduction under this section up to the extent of Rs. 100,000.
• Moreover, a cumulative additional deduction of Rs. 5,000 can be availed by individuals for preventive health-check up.

Modes of Payment:

Payments should be made by any other mode, except for cash. One can make use of cheque or DD to make the payment of their premium.
The payment on account of preventive health check-up can be made in cash.

Eligibility to claim health check-up deductions for all dependents?

The deduction is not available separately for every member of the family. However, note that health check-up deductions can be claimed only up to the amount of Rs.5,000, inclusive of all the dependents in the family.

Classification of Section 80D

The Section 80D of Income Tax Act, 1961 has been divided into two sections so as to fulfill specific insurance needs. Let’s uncover what these precise needs are.

---> Section 80DD - Deduction for the Rehabilitation of Handicapped Dependent Relative

This particular deduction can be availed by a resident individual or a HUF.

It is available on:

• Expense on medical treatment (including nursing), training as well as rehabilitation of a handicapped dependent relative.
   
• Payment or deposit into a particular scheme for the maintenance of a dependent handicapped relative.

                 i) Fixed deduction of Rs. 75000 - Disability 40% or more but less than 80%
                ii) Fixed deduction of Rs. 1,25,000 - Severe disability (disability is 80% or more)

It is important to note that in order to claim this deduction, a certificate of disability is necessary.

---> Section 80DDB - Deduction for the Medical Expenditure on Self or Dependent Relative

First and foremost, this particular deduction is available to a resident individual or a HUF.

Secondly, the amount that one can claim is Rs 40,000, if the expenses are incurred on medical treatment for self or any of dependents. As far as a HUF is concerned, the deduction is available for medical expenses that are incurred on any of the family members of HUF towards prescribed ailments.

Note that if the expenses are incurred on treatment of a senior citizen, they or HUF taxpayer are free to claim a deduction of up to Rs 1 lakh. (Until FY 2017-18, the deduction claimed for a senior citizen and a super senior citizen was Rs. 60,000 and Rs. 80,000 respectively. However, talking about today’s time, it is a common deduction available up to Rs 1 lakh for all senior citizens (including super senior citizens) unlike in the past.)

Yet another point to register is that an insurer’s or employer’s reimbursement of medical expenses shall be reduced from the quantum of deduction that the taxpayer can claim under this section.

Lastly, it is important for one to get a prescription for such medical treatment from the concerned specialist so that they are able to claim the deduction.

Things to Remember While Buying Health Insurance for Claiming Tax Deductions under 80D

You should consider the following things at the time of purchasing health insurance in order to claim tax deductions under section 80D:

• Premium for Group health insurance that is offered by the insurance company does not stand eligible for deduction.
• Payment of premium in place of a working child cannot be considered for tax deduction.
• Payment of health insurance premium for sister, brother, aunt, uncles, grandparents or any other distant family member cannot be claimed for deduction in order to receive tax benefits.
• The deduction that needs to be considered should be taken without showing cess part and service tax from the premium payable.
• If the payment of premium is made partly by you and some portion by a parent ( be it mother or father), then deduction can be claimed by both parties as per the extent of payment made by each person.

Also Read

Top Tax Benefits Available for Senior Citizens​

How to save tax legally?​

Conclusion

Health investment is a blessing. Not only it comes with multiple benefits, but also offers a reduction in one’s annual income tax liability. So, if, until now, you hadn’t thought about health insurance from this perspective or understood the importance of tax benefit on health insurance premium, make sure you make the most of the newly-gained information from now on.