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Things to Consider about Health Insurance and Tax Benefits

By Juhi Walia
29 September 2022, 1:58 PM

Health insurance is an essential investment. It nourishes you and your loved ones with financial security in cases of medical emergencies. Whether it be an unexpected hospitalization or a scheduled one, a health insurance plan provides complete coverage by assisting policyholders in covering the costs of the medical bills included in the policy. 

In addition to protecting your finances from growing medical costs, Section 80D of the Income Tax Act allows you to get tax advantages up to INR 1 lakh on the premiums paid for health insurance, subject to certain restrictions. As a result, buying health insurance is a wise decision.

Let’s understand this in detail:

1. Financial Protection against High Medical Costs: A staggering number of Indians suffer financial losses in the event of a medical emergency. Most families have to spend a significant amount of their money on health care due to the exorbitant costs. This has a severe effect on their financial future. Health insurance proves to be extremely beneficial when you completely rely on your savings to mitigate those unforeseen expenses. Many excellent health insurers in India provide plans to meet the needs of various individuals, covering the pre and post-hospitalization charges, costs of at-home medical care, daily cash allowance in the event of emergency hospitalization, etc. All you need to do is do a little research, compare, and shop.

2. Tax Savings: In addition to assisting you in covering astronomical medical costs, health insurance benefits you in the reduction of your tax liability too. Section 80D of the Income Tax Act of India authorises a tax exemption of up to INR 1 lakh on health insurance premium payments.

Considerations to Make While Claiming an Exemption Under Section 80D

  • Tax benefits on health insurance proves to be an excellent choice for your financial planning. Health insurance plans, including family floater health insurance  (covering your dependent parents, spouse, and children) make you eligible for tax benefits.
  • The benefits of tax exemption apply to the health insurance premium only, i.e., they do not apply to other fees like GST, service costs, etc. If your health insurance includes a critical health insurance add-on, you may be able to health insurance claim a tax deduction for the premium you paid for the addition.
  • Cash-paid health insurance premiums are not exempt from taxes under section 80D of the income tax act. All other payment methods, including demand drafts, net banking, cheques, debit cards, and credit cards, are eligible to claim benefits. Since tax advantages cannot be claimed by a third party, only a taxpayer should pay health insurance payments.

Considerations to Make While Subscribing to a Health Insurance Plan

1. Limit on Health Insurance Premium Tax Benefit Claims:

ScenarioSelf, Spouse, and ChildrenParentsTotal Eligible Deductions u/s 80D
Individuals and parents both below the age of 60INR 25,000INR 25,000INR 50,000
Individual, spouse, and children below the age of 60, but parents are senior citizens (older than 60 years)INR 25,000INR 50,000INR 75,000
Both, Individual and his parents older than 60 yearsINR 50,000INR 50,000INR 1,00,000
Non-residentsINR 25,000INR 25,000INR 25,000

Table 1: Depicting Limit of Tax Exemptions u/s 80 D

2. Medical Check-ups: It is always advised to keep a close check on your health because lifestyle diseases are becoming more prevalent these days. Frequent health check-ups assist you in the identification of possible health risks before they evolve as an issue and hence they surely qualify for health insurance tax benefits. Because of this, the majority of reputable hospitals provide packages for preventive health checkups. 

When paying for a health insurance premium eligibles you for a maximum deduction of up to INR 1 lakh. A preventative health checkup also allows you the tax benefit of up to INR 5,000 inclusive of this limit. Note that amounts paid for preventive health checkups are eligible for a deduction of up to INR 5,000 irrespective of the fact they are paid in cash or by any electronic means.

3. Every Kind of Health Insurance has Tax Benefits: Not just do the indemnity-based plans offer tax benefits but plans with other specified benefits also offer tax benefits. According to Section 80D of the Income Tax Act, premiums paid for defined benefit plans like daily hospital cash or critical illness plans and indemnity plans like medical insurance are eligible for tax deductions.

4. Senior Citizen Health Insurance: To maximise your tax benefits, it would be best if you buy separate senior citizen health insurance (irrespective of whether they are senior citizens or not). By subscribing to separate plans for your parents and you, in addition to receiving tax advantages, you also make sure that you have enough money to take care of any financial commitments that might arise in case your parents experience a medical emergency.

5. Payment via Electronic Modes: Cash payment is accepted when it comes to paying the renewal premiums. Nevertheless, experts suggest that if someone aims for tax deductions he must pay the premium via the electronic mode (cheques, bank draft, net banking, credit or debit cards) only.

However, as mentioned above, cash payments are only advantageous when getting preventative health checks.

Final Takeaways

However, when purchasing health insurance, tax savings must not be your only consideration. Health insurance is useful to reduce unplanned expenditures when medical prices are skyrocketing and one hospital stay may cost you an arm and a leg. Although health insurance is usually accompanied by tax benefits that help the person save more money, and purchase health insurance while considering the requirements and analyzing the cost of unforeseen possibilities only.

Last but not least, as different plans come with distinguishable characteristics and benefits, act rational and make an informed purchasing decision by analyzing various online health insurance providers.

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1. How can I subscribe to a health insurance policy?

Contact the best insurance provider and comprehend the policies they provide,  once you choose your preferences in the policy, submit them all the documents required and use the health insurance premium calculator (online tool) to know the best premium price.

2. Who is eligible for Section 80D tax benefits on health insurance? Am I qualified to receive a tax deduction under this section?

To receive tax benefits, the applicant must fall into one of the following categories:

  • Individual
  • Non-Resident Indian
  • Hindu Undivided Family

Therefore, if you fall into one of the aforementioned groups and have bought a senior citizen health insurance plan for your parents, a family floater policy, or an individual health insurance policy, you may be eligible for a deduction under Section 80D.

3. What paperwork must be provided in order to receive tax incentives on health insurance premium paid?

When submitting income tax returns, the receipt for the premium payment and a copy of the health insurance policy are necessary.  If you have contributed to your parent's insurance too,  you must obtain the 80D certificate from the insurer.

4. How many times a year may we submit a claim for health insurance?

Several times, up until the full amount of the money insured is exhausted. The number of claims, however, has been restricted by several insurers.

5. Do you take advantage of tax benefits for fixed benefit plans or indemnity plans?

You may take the advantage of tax benefits on premiums paid for health insurance, regardless of the plan you purchase.

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