In India, health insurance and related investment avenues have become an essential financial shield in a country where healthcare costs are increasing. Other than medical coverage, they also offer lucrative tax benefits under Chapter VI-A of the Income Tax Act-1961. Let us now analyse how health insurance and related investments protect you from tax while ensuring financial security.
Health Insurance: Both Protection and Saving
Health insurance is a kind of safety net to be used in medical emergencies. Besides that, it is also one of the most recognised tax-saving tools. Here's how:
a. Tax Benefits Under Section 80D
Premium Paid for Self, Spouse, and Children
A deduction of up to ₹25,000 is allowed if a taxpayer pays the premium on his health insurance policy for himself, spouse, and dependant children.
Premium Paid for Parents
An additional deduction of ₹25,000 shall be available if the parents are below the age of 60 years. However, if the parents qualify as senior citizens (i.e., they have attained the age of 60 years), the limit of deduction increases to ₹50,000.
Preventive Health Check-ups
A deduction of up to ₹5,000 for preventive health check-ups may also be claimed within the above limit of ₹25,000 or ₹50,000.
Scenario of Both Parents and Self Being Senior Citizens
The maximum deduction available in such a case can be up to ₹1 lakh (₹50,000 for self and family + ₹50,000 for parents).
b. HUF Benefits Under Section 80D
HUFs (Hindu Undivided Families) can also avail health insurance deductions under Section 80D. The deduction available is similar to those allowed in the case of individual taxpayers.
Health-Related Investments: A Meaningful Tax-Saving Option
By investing in healthcare-related financial products, tax relief may be claimed. Some safe investment avenues include:
Medical Fixed Deposits (FDs)
Some banks offer medical FDs that may be eligible for deductions under Section 80D. However, interest earned on such FDs is taxable.
Health-Linked Savings Plans
These are insurance-backed savings plans offering life cover and health benefits. Premiums paid may qualify under Section 80C or 80D depending on the policy structure.
National Pension Scheme (NPS)
Though primarily a retirement plan, NPS also helps cover senior citizen health expenses. Contributions are deductible up to ₹1.5 lakh under Section 80CCD(1) and ₹50,000 under Section 80CCD(1B).
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Tax Benefits on Critical Illness Policies
Premiums paid on critical illness policies (e.g., for cancer, heart ailments, organ transplant) are eligible for deductions under Section 80D, just like regular health insurance.
Employer-Provided Health Insurance Benefits
In the case of employer-provided group health insurance, the premium is not taxable in your hands. Any additional premium paid to enhance coverage is eligible for deduction under Section 80D.
Health Savings Account (HSA)
Although not widely available in India, some companies offer HSA-like products that allow you to save for healthcare expenses. These may not offer immediate tax benefits but encourage disciplined healthcare savings.
Medical Treatment Expenses (Section 80DDB)
For expenses incurred on specified illnesses like cancer or neurological diseases, the deduction limits are:
- Up to ₹40,000 for non-senior citizens
- Up to ₹1 lakh for senior and super-senior citizens
Disabled Dependent Care (Section 80DD)
For medical treatment of a disabled dependent, one can claim:
- Up to ₹75,000 for regular disability
- Up to ₹1.25 lakh for severe disability
Tax-Saving Checklist
- Consider a Family Floater Plan: Cover yourself and senior citizen parents under one plan.
- Top-Up and Super Top-Up Plans: Economical way to increase coverage.
- Utilise Preventive Health Check-Up Deduction: Claim up to ₹5,000.
- Invest in Critical Illness Insurance: For protection and tax savings.
- Keep All Medical Bills: Essential for claiming deductions.
Besides health insurance and health-oriented investments for your medical safety, the two are also excellent tax-saving instruments. With appropriate planning, you can make the most out of your savings, along with health security.
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This article is written by CA Manish Mishra, Founder, GenZCFO.
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