Any financial planner you meet will have a different piece of advice to give you. However, they will all always have some things in common. For example, they will all tell you to either save up for taxes or look at tax-saving options. Moreover, most recommend insuring yourself for any medical needs that may arise with health insurance.
Therefore, the first idea you have is to find a good health plan and some good tax-saving options. However, they can be one and the same. Ultimately, health insurance is a financial tool that helps you with your medical bills. This gives most people the idea that health insurance is just a safety net in case you get sick. But if you buy health insurance, it can prove to be extremely helpful with tax benefits.
The premium you pay for health insurance allows you to benefit from tax advantages. Here’s a look at what they are and a few things to better navigate through them:
Chapter 80D
The Income Tax Act from the Constitution of India acted as a handbook for all things tax related. When it comes to health insurance, the part you need to pay attention to is Section 80D. According to Section 80D, the premium you pay for health insurance policies gives you a deduction on your income tax. This benefit is available to spouses, children, parents and other dependents, as well as persons who have taken out health insurance for themselves. Additionally, when it comes to children and parents, it doesn’t matter if they are dependent on you or not.
The amount of deduction you can claim as a tax advantage depends on the age of the people specified in the policy. For example, if you pay premiums for medical insurance for you, your spouse, children and parents, the maximum deduction you can claim is ₹25,000 per year. However, it only applies if policyholders are under the age of 60.
Also, if the parent you include on your health insurance is over 60, the maximum deduction you can claim is ₹50,000 per year. Therefore, if you are under 60 and your parents are over 60, you can maximize your tax benefit to ₹75,000. If both you and your parents are over 60, your health insurance premium qualifies you for a maximum tax benefit of ₹1,00,000.
Also, Section 80D allows you to claim tax deductions for preventive health checks. While this does not increase the deduction limit you can claim, using your policy for a preventive health check gives you an advantage of ₹5,000.
What you need to know about tax benefits under Section 80D
- Can be used for any health plan
Simply put, any type of health insurance plan can qualify you for tax benefits. The popular view is that only individual health policies and compensation plans such as family floating health plans are eligible for tax breaks. However, defined benefit plans such as a daily hospital cash policy or a critical illness policy can provide the same benefit.
- Life insurance add-ons
The tax benefit offered by Section 80D applies to the premium paid for health insurance. Therefore, you do not need to purchase coverage for health insurance companies. Even if you pay premiums for critical illness or health insurance add-ons on a life insurance plan, you can still qualify for the same amount of tax deductions.
- Cash payment
Many people still prefer to make their premium payments in cash. While these payments are accepted for health insurance, they are not eligible for tax deductions. If you want to take advantage of the income tax reduction, you cannot make the premium payment in cash. You can pay for tax benefits by net banking, policy, check or card. However, even if you pay cash premiums, you are still eligible for the tax benefit when you are eligible for the 80D benefit at the preventive medical examination.
