Ved and Tara are two best friends sailing smoothly through the ocean of life. Both are in their early 30s and have decent jobs. They are smart, diligent, and make the most of their incomes. However, there’s one thing Ved seems to do better than Tara and the rest of his friends: maximize his tax savings on medical insurance.
Every year, when tax season is around the corner, they all enviously eye Ved’s significant tax deductions. So, one day, out of curiosity, Tara asked Ved how he managed tax savings on medical insurance every year. To this, Ved leaned back with a knowingly smile and told Tara that it was all about making the most of health insurance benefits. Tara confusingly asked Ved to explain her further.
Health Insurance Tax Benefits Under Section 80D
Ved told her about the dual benefits of health insurance, ensuring financial stability and saving money. Starting with the basics, he told Tara that the premium she pays for her health insurance premium qualifies for tax deduction under Section 80D of the Income Tax Act 1961. She asked Ved to tell her more about the deductions under this act. He explained further that a deduction of up to Rs. 25,000 a year can be claimed for the premium paid for the health insurance policy for self, spouse, and dependent children, subject to the premium paid. He also added that if you or your spouse are a senior citizen, this limit can go up to Rs. 50,000. Additionally, for her parents, she can avail up to Rs. 25,000 if they are below the age of 60 and Rs. 50,000 if they are 60 or older.
To this, Tara started doing math in her head:
Rs.25,000 (For self) + Rs.25,000 (For parents below 60) = Rs.50,000
She now understood that she could potentially claim up to Rs. 50,000 for the premium paid.
Aggregate Limit on 80D Tax Saving
Ved also mentioned the aggregate limit on claiming tax on health insurance premiums per year. He told Tara that under Section 80D, she can claim only up to Rs. 1 lakh per year, including premiums paid for herself, her spouse, dependent children, and parents. However, if she and her parents are senior citizens, she can claim up to Rs. 1.5 lakh per year. Also, the premiums should be paid from her taxable income, and the mode of payment should be cashless.
Tara was intrigued but a bit overwhelmed and asked if she could save tax on health insurance premiums paid to extend health insurance coverage for siblings or in-laws. Ved replied enthusiastically and asked her to bear in mind that any premiums paid to extend health insurance coverage for siblings, in-laws, independent children, etc. cannot be used for tax exemption under this act.
Tax Saving on Preventive Health Check-Ups
Tara went on curiously and asked Ved if there were any other ways to save tax. “Absolutely!” Ved replied. He explained to her that she could claim an additional benefit for preventive health check-ups, which includes screenings and diagnostic tests, and save up to Rs. 5,000 within the overall limit. He elaborated further that if she pays a health insurance premium of Rs. 20,000 and also spends Rs. 3000 on health check-ups, she will be eligible for the tax exemption of Rs. 20,000 for the premium paid on health insurance and Rs. 3000 on check-ups, as the total is less than the overall limit of Rs. 25,000. Under Section 80D, this is the maximum claim limit and cannot be exceeded. Also, if she has made cash payments for preventive health check-ups, it is accepted under the 80D Act.
Old vs New Tax Regime
Ved also informed her about the new tax regime for FY 2023–24, which does not offer any tax deductions under Section 80D for health insurance premiums or preventive check-ups. To this, Tara unsettlingly asked Ved about the benefits he mentioned above. He assured her that she has the option to choose between the two regimes, and can opt for the old tax regime. However, she should carefully evaluate which regime is most beneficial based on her income and potential deductions.
Save More With Multi-Year Health Policy
Ved shared another essential tip with Tara: if she purchases a multi-year health policy, she can enjoy multiple benefits as insurers offer discounts on the purchase of a multi-year policy. Also, she doesn’t have to worry about the hikes in premiums, as the premium would be the same during the policy period. He further stated that with a multi-year policy, she can claim the total premium paid for those years, spread out evenly over the policy period. So, if she pays Rs. 60,000 for a three-year policy, she can claim Rs. 20,000 each year (keeping the overall limit of Rs. 25,000 per year under Section 80D).
Additional Tax Savings on Top-Up Plans & Critical Illness Insurance
Ved suddenly recalls a situation where he exhausted his sum insured and required extra coverage for his mother’s treatment, and then the top-up plan he purchased came to his rescue. He further mentioned that purchasing top-up plans and super-top-up plans not only provides additional coverage beyond the base policy, but the best part is that the premiums paid for these plans are also eligible for deduction under Section 80D.
He also asked her not to forget about the critical illness insurance she recently purchased for herself. The premium she pays for the plan is also eligible for tax deduction under Section 80D.
Tara had one last confusion but took no time to clear her doubt. She asked Ved if group health insurance premiums paid by their company were also eligible for a tax deduction. To this, Ved replied that only the company is eligible to claim a tax deduction as they are paying the premiums on their behalf.
Tara was now convinced and noted down the above 80D tax-saving tips, realizing how much she was missing out on health insurance tax benefits. Next year, she saved a significant amount on taxes by following Ved’s financial tips and thanked him for the same.
Wrapping Up!
Health insurance is not just a necessity but also an important financial tool to save taxes. It is often difficult to understand the nuances of tax benefits associated with health insurance for first-time taxpayers. However, by understanding and utilizing the above 80D tax-saving strategies, you can secure both your health and financial future, just like Ved and Tara.
>> Also Read: Tax Exemptions in Mediclaim Policy
Disclaimer: The above information is for reference purposes only. Kindly consult your general physician for verified medical advice. The health insurance benefits are subject to policy terms and conditions. Refer to your policy documents for more information.
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