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Tax Saving Using Section 80D

“Make your life safe and get insurance immediately”. This statement was never more relevant than the times when the pandemic threatens to wipe off the population. Having seen the medical chaos in the country recently, it’s even more critical to ensure we have a health insurance policy as a protective cover so that we can tide over the financial impact caused by hospitalization during a medical emergency.

Section 80D is a facility introduced in the Income Tax Act, 1961 to allow taxpayers to claim a deduction for medical insurance premium paid. This article highlights the details of the same.

At the outset you need to keep in mind that there is an optional tax regime with effect from 1 April 2020. An individual can claim exemptions and deductions and continue with the old tax regime or opt for a lower tax rate regime and forfeit the exemptions and deductions (Section 80D being one of them). So, this deduction is relevant only if you choose the old tax regime.

Who can avail this deduction?

This deduction can be availed by all taxpayers (individuals or Hindu Undivided Families (HUF)) for premium paid for health insurance policy availed in the name of:

  • The taxpayer himself
  • The spouse of the taxpayer
  • Dependent children of the taxpayer
  • Parents of the taxpayer
  • In case of HUF - members of HUF

If you have children who are not dependent on you, that does not qualify as a deduction under this section. However, children are entitled to avail the deduction from their individual total income. The said section also does not apply to group health insurance policies. Flying across borders to avail the best medical treatment for those who can afford it is also very common. However, you can avail of this benefit only if your policy provides you coverage for medical treatment incurred abroad.

Mode of Payment

Deductions for medical insurance premiums can be claimed if the amount of payment was remitted by means of online banking, cheque draft, debit/credit cards, or any other online mediums.

Permissible Deductions

During the financial year, one can claim a deduction for the following medical expenses incurred: -

  • Premium paid for medical insurance through any mode of payment other than cash
  • Medical expenses incurred for the health and wellbeing of a senior or super senior citizen who is a dependent member belonging to the family of the taxpayer where there is no medical insurance cover for such individuals.
  • Sum paid on account of preventive health check-ups up to Rs. 5000.
  • Expenses incurred under any Central Government health schemes

Quantum of Deduction (INR)

 

Self-family and children

Parents

Total Deductions

Individuals and parents below 60 years

25000

25000

50000

Individuals and family members below 60 years but parents above 60 years

25000

50000

75000

Both individual, family and parents above 60 years

50000

50000

100000

Members of HUF (all members for whom premium paid below 60 years of age)

25000

25000

25000

Non-resident individual

25000

25000

50000

Preventive Health Check-up under 80D

The government introduced preventive health check-up deduction to encourage citizens from being more proactive towards health. The motive of preventive health check-up is to identify the occurrence of any illness and mitigate risk factors at an early stage. Section 8D includes a deduction of Rs 5000 for any payments made towards preventive health check-ups. This deduction falls within the overall limit of Section 80 D. This deduction can also be claimed by the individual for himself, spouse, dependent children or parents. A cash payment can be made for preventive health check-up.

Is a proof required under section 80D?

There is no requirement to submit any document for claiming the deduction while filing the return of income. However, it would be prudent for completeness and record to retain the receipt of the payment in your tax file. You should maintain insurance premium paid receipts and the policy copy as well. In case your tax return is selected for a scrutiny you may be asked to provide with a copy of the insurance policy/premium receipt for payment.

An Example

An individual Mr. A (age 34 years) pays medical insurance premium during the Financial Year 2021-22 as under: -

  • Rs 24,000 as insurance policy premium on his own health and
  • Rs 53,000 as insurance policy premium on the health of his parents (parents are 57 and 58 years of age)

In the above-mentioned scenario, Mr. A would be allowed a deduction of Rs 49,000 (Rs 24,000 + Rs 25,000) as neither of his parents is a senior citizen. However, if any of his parents were a senior citizen, he will get a deduction of Rs 74,000 (Rs 24,000+ Rs 50,000). The deduction for senior citizen parents is restricted to Rs 50,000 as against the premium paid of Rs 53,000.

The Bottom Line-Key learnings

  1. Investing in your health assumes paramount significance. It comes with multiple benefits including helping you reduce your annual tax liability.
  2. This is the opportune time if not already done so to buy a health insurance cover for self and family.
  3. Do check your eligibility according to age and according to who all you are paying for and plan your health expenditure accordingly for tax saving purposes.

Disclaimer:

ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470. I-Sec acts as a Composite Corporate agent having registration number –CA0113. Please note, Insurance related services are not Exchange traded products and I-Sec is acting as a corporate agent to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein mentioned are solely for informational and educational purpose.

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