What Are The Tax Benefits Of Health Insurance?

Owing to the rising medical costs, investing in health insurance is crucial. Health insurance is a contract between you and an insurance company. The company promises a sum insured to cover treatment costs associated with numerous illnesses. You simply have to pay annual premiums to obtain coverage against expenses like diagnoses, hospitalisation, doctor’s fee, medication, etc. Besides financial security, another significant advantage of health insurance is that you can claim tax deductions. In this article, we have listed the many ways in which you can save money and enjoy health insurance tax benefits. 

Tax Benefits Of Health Insurance

When you buy a health insurance plan, you typically have to pay a premium to enjoy the coverage under your chosen policy. You can claim tax deductions on these premiums under Section 80D and its subsections under the Income Tax Act of 1961. Essentially, the premium amount is subtracted from your total taxable income, and you save money by paying lesser tax.

Let’s assume your tax liability for this financial year is ₹600,000. If you pay ₹15,000 as a premium for a general health insurance policy, your tax liability reduces to ₹585,000 Lakh. Moreover, suppose you pay premiums for health insurance plans for your family members, i.e., your spouse, dependent children and parents. In that case, you can lower your tax liability even further and enjoy higher health insurance tax benefits.

What Are The Tax Beunnefits of Health Insurance Under Section 80D?

Under Section 80D, taxpayers can claim deductions against premiums paid for themselves and their close family members. The deductions available depend upon the insured parties and their age, as explained in the following table.

Let’s now understand every section in the above table with an example for each of the scenarios.

1. 30-year-old Riya pays ₹8,000 in yearly health insurance premiums for herself. Since the maximum deduction available for individual investors is ₹25,000, Riya can claim the entire premium amount as a tax deduction.
2. Ram is 35 years old and pays ₹30,000 for a family floater plan that covers him, his wife and their daughter. Here, the premium amount exceeds the maximum deduction limit. Therefore, he can only claim ₹25,000 as a tax benefit of health insurance. He must pay taxes on the remaining ₹5,000 invested towards health insurance.
3. 30-year-old Mary pays ₹27,000 towards annual health insurance premiums to cover her spouse and children. She spends another ₹24,000 for health insurance premiums for her dependent parents below 60 years of age. For the first policy, Mary can claim a maximum of ₹25,000 against insurance premiums paid towards herself, her spouse and her children. In the second, she can claim the entire ₹24,000 for premiums paid to insure her parents’ heath. However, Mary cannot claim cumulative tax benefits even though her parents’ insurance policy premium is lower. 
4. Naveen is 50 years old and pays ₹35,000 as an annual premium for a family floater plan that covers his wife and children. He also pays ₹48,000 for his senior citizen parents’ health insurance plan. Naveen pays a total of ₹83,000 towards health insurance premiums per annum. However, he can only claim ₹73,000 as a tax deduction, i.e., ₹25,000 under his age threshold and ₹48,000 under his parents’ age threshold.
5. 61-years-old Meera buys health insurance for herself and her mother, aged 84 years. She pays approximately ₹52,000 for her and ₹60,000 for her mother’s insurance plans, respectively. Her total annual expense towards health insurance plans for herself and her mother is ₹112,000. Meera can thus claim health insurance tax benefits of up to ₹50,000 for herself and ₹50,000 for her mother against the premiums paid for their individual policies.

Note that the above health insurance policy tax benefits under Section 80D also apply to Hindu Undivided Families (HUFs) and Non-Resident Indians (NRIs). However, NRIs can claim tax benefits of health insurance policies purchased and enchased in India only.

Tax Deductions On Preventive Health Check-ups

Yearly health check-ups are necessary as they help detect various life-threatening diseases, signs of high blood pressure, diabetes, etc. Under Section 80D, you can claim tax deductions of up to ₹5,000 per financial year on preventive health check-ups. This amount of ₹5,000 is included within the health insurance tax benefits offered under Section 80D. 

While numerous insurance companies offer complimentary health check-ups with their insurance policies, you can purchase preventive healthcare packages, including cancer, heart, and dental check-ups, among others. Here’s an example to help understand this better.

Let’s say you are paying ₹20,000 on insurance premiums for yourself, your spouse, and your children annually. You have also purchased a separate insurance policy for your senior citizen parents and are paying ₹43,000 for their policy. To ensure you and your family are always in good health, you undergo preventive health check-ups each year. Since you can claim tax deductions up to ₹25,000 per annum, you can utilise the ₹20,000 + ₹5,000 benefit on preventive check-ups for your kin and another ₹43,000 + ₹5,000 on preventive check-ups for your parents under the ₹25,000 and ₹50,000 limit respectively. 

Tax Deductions On Add-Ons

General health insurance policies may not cover every medical need, and you may want to add additional riders for comprehensive coverage. You can purchase various additional riders to get this maximum coverage under Section 80D so long as you do not exceed the tax deduction threshold.

For instance, let’s assume you have invested in a health insurance plan of ₹15,000. You purchase an ambulance rider and a hospital cash rider of ₹3,000 and ₹5,000, respectively. Since your total premium amount of ₹23,000 is below the tax deduction limit of ₹25,000, you can claim a tax deduction on the base plan plus additional riders. 

Other Tax Benefits For Medical Expenses

Apart from the health insurance tax benefits under Section 80D, you can enjoy deductions on premiums paid under sub-sections of 80D, including:

80DD: Under this section, if you have incurred treatment costs for a dependant with physical disabilities, you can claim up to ₹75,000 as a tax deduction. In case of severe disability, the deduction limit is increased to ₹1.25 Lakh. Dependants can be your spouse, children, parents and siblings. 

80DDB: You can avail of a deduction on expenses incurred for treatment for specific diseases. The deduction is also applicable if you paid for a dependant’s treatment. You can get tax deduction benefits for the total expense or expenses up to ₹40,000, whichever is lower. For senior citizens, the limit is increased to ₹1 Lakh.

Payment Modes That Qualify For Tax Deduction

To be eligible for a tax deduction, you must be careful about how you pay the policy premiums. Per Section 80D, you can claim tax benefits if you have paid the premiums through traceable means like net banking, debit card, credit card, demand drafts or cheques. Premiums paid via cash do not qualify for health insurance tax benefits. 

The only time you can avail of deductions via cash payments is for payments made towards preventive health check-ups. To claim deductions for preventive check-ups, you must obtain and submit payment receipts while filing your annual tax returns.

Tax Deduction With Health Insurance – The Exclusions

You will be considered ineligible for tax deductions against health insurance premiums if:

• You paid the premiums in cash.
• You do not provide receipts while filing your IT returns.
• Someone else paid the premium on your behalf. (Ideally, as the policyholder, the premium amount should be deducted from your account.)
• You purchased a policy for your siblings, friends, in-laws, etc.

Documents Required To Claim Health Insurance Tax Benefits

You need to provide the following documents while filing your ITR filing:

• Premium payment receipt.
• Insurance policy copy showing the family members’ names, their ages and their relationship with the primary policyholder.
• 80D certificate available from the insurance company mentioning the payment details.
• Cash receipts for preventive health check-ups.

Why is a Health Plan better than Health Insurance?

Traditional Health Insurance generally covers Hospitalization expenses when admitted for over 24 hours. LivLong Health Plan on the contrary covers not just hospitalization expenses (powered by IRDAI approved Insurer) but also expenses around Doctor consultations, lab tests, pharmacy, and more, providing much higher value for money.

Final Note

Health insurance offers dual benefits in the form of medical coverage and tax benefits. You can lower your tax liabilities by paying health insurance premiums for yourself and your family. The more you reduce your tax liability, the lesser income tax you have to pay. Ensure you use online and traceable payments modes like internet banking, debit and credit bank cards, cheques or demand drafts while purchasing insurance policies. Also, remember to save all your receipts and file your taxes before the financial year ends to claim health insurance tax benefits.