benefits on health insurance policies
Know all about tax benefits on health insurance policies
In the realm of financial planning, one of the cornerstones of building a secure future is ensuring you have adequate health coverage. It is often said that "health is wealth," and with good reason. A healthy you and your family are essential for pursuing your dreams and ambitions in life. In addition to safeguarding your well-being, health insurance policies can offer tax benefits under certain provisions of the Income Tax Act.
In this article, we will explore the various aspects of tax benefits associated with health insurance policies and how they can contribute to your financial well-being.
Under Section 80D of the Income Tax Act, premiums paid towards health insurance policies for yourself, your parents, spouse, and children are eligible for tax deductions. It's worth noting that this tax benefit extends to your parents, whether they are financially dependent on you or not. The amount of tax deduction varies based on the age of the insured individuals. Let's break it down into different scenarios:
When no family member is above the age of 60:
Self, Spouse & Children: Rs 25,000
Parents (whether dependent or not): Rs 25,000
Total deduction under Section 80D: Rs 50,000
When everyone in the family is below the age of 60:
Self, Spouse & Children: Rs 25,000
Parents (whether dependent or not): Rs 30,000
Total deduction under Section 80D: Rs 55,000
When all family members are above 60 years of age:
Self, Spouse & Children: Rs 30,000
Parents (whether dependent or not): Rs 30,000
Total deduction under Section 80D: Rs 60,000
Additionally, top-up and super top-up policies, which provide supplementary health insurance coverage when the deductible of the primary insurance policy is exceeded, also offer tax benefits under the same act.
It's important to recognise that tax benefits are not limited to the standard indemnity policy or family floater plans. Defined benefit plans like daily hospital cash plans and critical illness plans from standalone health insurance company and general insurance companies are also eligible for tax deductions.
Health insurance riders offered by life insurance companies can also provide tax deductions under Section 80D. Premiums paid for medical insurance riders and critical illness riders are also eligible for tax benefits. In addition, premiums paid for health insurance policies from life insurance companies qualify for tax deductions.
Under Section 80DDB, you can claim deductions of up to Rs 40,000 for medical expenses related to specified ailments incurred by yourself, parents, or children. The allowable amount may vary based on the age of the insured individual. For senior citizens aged between 60 and 80, the limit is Rs 60,000, while super senior citizens (above 80 years) have a limit of Rs 80,000. To claim this deduction, it's crucial to submit a medical certificate from a specialist doctor that contains all the required details.
Covered diseases include cancer, thalassemia, neurological diseases with 40% or more disability, hemophilia, Parkinson's disease, chronic renal failure, and more. Importantly, the government has made amendments allowing certificates from private doctors to be considered valid, a change from the previous requirement of certificates from government hospital specialists.
It's essential to note that if you are reimbursed for treatment by your insurer or employer, you are not eligible for tax deductions under Section 80DDB. However, if you receive partial reimbursement from your employer, you can claim a deduction for the remaining amount.
Preventive health checkups also come with tax benefits. You can claim deductions of up to Rs 5,000 for health checkups, provided they are within the maximum limit of Rs 25,000 or Rs 30,000. This means that if your health insurance premium is Rs 20,000 and you undergo a medical test costing Rs 5,000, you can claim a total tax benefit of Rs 25,000 under the Income Tax Law. However, it's crucial to note that tax benefits are available only for preventive checkups and not for checkups performed during treatment.
Individuals with a disability of 40% or more can claim a tax deduction of up to Rs 75,000 for medical expenses incurred on themselves under Section 80DD. This amount increases to Rs 1.25 lakhs in the case of people with over 80% disability. To claim this deduction, you need to submit a copy of the medical certificate issued by a specialist doctor along with a 10-IA form when filing your tax return.
While you can pay your health insurance premiums in cash, the income tax rules do not provide tax benefits for premiums paid in cash. To qualify for tax benefits, premiums should be paid via Internet banking, cheque, credit card, or any method other than cash. However, cash payments for preventive health checkups do qualify for tax deductions, so be sure to keep all relevant receipts.
It's essential to note that the service tax applied to health insurance premiums is not eligible for tax benefits. This means that while your premium amount can be claimed for deductions, the associated service tax cannot be included.
To provide a practical perspective, consider the following scenario: An individual pays Rs 15,000 for their health insurance and Rs 30,000 for their parent's health insurance. In this case, if both parents are below 60 years of age, the individual can claim a deduction of Rs 40,000 (Rs 15,000 + Rs 25,000). However, if one or both parents are senior citizens, the tax deduction increases to Rs 45,000 (Rs 15,000 + Rs 30,000).
In conclusion, health insurance is a vital component of your insurance portfolio, offering financial protection and peace of mind. While the tax benefits associated with health insurance are a valuable advantage, it's essential to remember that they should not be the sole reason for purchasing health coverage. Instead, view the tax benefits as an additional incentive for securing the health and well-being of both yourself and your loved ones. Ultimately, by combining financial prudence with a focus on your health, you can pave the way for a secure and prosperous future.
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