A health insurance plan is important not only for safeguarding you financially but it also relieves your financial as well as tax burden. A health insurance plan is one of the best tools to enjoy tax rebates along with financial safety to overcome huge medical expenses.
A health insurance plan offers multiple ways with which an individual can save their hard-earned money. A health insurance plan can be used as an effective tax-saving tool and is a major contributor to tax planning. Tax planning is an essential part of financial planning so let us see how a health insurance plan will help in saving taxes.
Ways to Save Income Tax by Investing in a Health Insurance Plan
The following are various scenarios wherein an individual can plan tax-saving using a health insurance plan.
- When an individual purchases a health insurance cover he/she is eligible to receive tax exemption under section 80D of the Income Tax Act, 1961. This tax exemption can be availed by paying the health insurance premium amount. The amount paid towards the health insurance premium of self, spouse, parents, and children all provide tax relaxation and reduce an individual’s tax liability. Thus, the amount paid as a health insurance premium qualifies for a tax deduction.
- The tax-saving facility available under the health insurance plan is available for both salaried as well as self-employed individuals.
- The premium amount is dependent on the age of the insured similarly the total amount of tax benefit is dependent on the age of the person insured. If the health insurance premium amount is paid for securing self, spouse, and children then the maximum tax benefit that can be availed is INR 25000 per annum. Well, an additional tax benefit of INR 25,000 can be claimed on the premium paid for parents.
However, kindly note the INR 25000 tax deduction is only available for premium paid by an individual towards a health insurance plan for his/her family members who are not above 60 years.
For example, Mr X and his parents( both) are below 60 years so in this scenario the total tax deduction that Mr X can claim is INR 50000 (INR 25000 for health insurance premium amount paid for self, spouse, and children PLUS additional INR 25000 for the health insurance premium paid for parents).
- However, if an individual pays a premium amount of health insurance plan, securing his/her parents aged 60 years or more then the maximum tax deduction to be availed is capped at INR 50000. For example, Mr X is below 60 years and Mr X parents both are above 60 years so in this scenario the total tax deduction that Mr X can claim is INR 75000 (INR 25000 for health insurance premium amount paid for self, spouse, and children PLUS additional INR 50000 for the health insurance premium paid for parents).
- While the tax benefit is capped at INR 50000 if an individual is aged 60 years or more. For example, Mr X and his parents( both) are above 60 years. So in this scenario, the total tax deduction that Mr X can claim is INR 100000 (INR 50000 for health insurance premium amount paid for self, spouse, and children PLUS additional INR 50000 for the health insurance premium paid for parents).
- Non-Resident Individuals can also claim an income tax deduction for the premium paid towards self, spouse, dependent children and dependent parents, just like a resident Indian.
- Furthermore, an Individual can health insurance claim a tax deduction on preventive health check-up up to INR 5000. However, this amount falls within the maximum overall limit of INR 25000 / INR 30000.
Summary of 80D Deductions
| Scenarios | HI Premium eligible for IT deductions U/S 80D for self, spouse and dependent children | HI Premium eligible for IT deductions U/S 80D for dependent parents | Total HI Premium eligible for IT deductions U/S 80D |
|---|---|---|---|
| Self, Spouse and dependent children < 60 years | INR 25,000 | NA | INR 25,000 |
| Self, Spouse and dependent children < 60 years + Dependent Parents < 60 years | INR 25,000 | INR 25,000 | INR 50,000 |
| Self, Spouse and dependent children < 60 years + Dependent Parents > 60 years | INR 25,000 | INR 50,000 | INR 75,000 |
| Self/ Spouse and dependent > 60 years + Dependent Parents > 60 years | INR 50,000 | INR 50,000 | INR 1,00,000 |
Hence, a maximum of INR 1 lakh can be claimed as an income tax deduction under section 80D by any individual. A preventive health check-up of INR 5,000 can also be a part of this total deductible amount U/S 80D.
Conclusion
Investment is a conscious decision. Every individual must plan their investments wisely and reap maximum tax benefits in due course. A health insurance plan is one of the main ingredients of a successful investment portfolio as it not only helps to cover the rising cost of medical treatment but also helps in saving tax.
