What are Tax Benefits of Buying Individual or Family Health Insurance?

Tax benefit of health insurance under section 80D and 80DD of income tax act


Buying a health insurance policy is not always a top priority for us. More often than not, we delay buying the policy since we consider it as an added expense to maintain our health. Our basic reasoning- of not buying a policy- is associated with the money to be spent on the yearly health insurance premium. It is then obvious that many of us are not aware of simple facts like initially, we may not need to pay that big a sum. That, the sooner we buy a health insurance cover, lesser will be the cost of buying such a policy. At a later stage of life, if you wish to add more members to the insurance cover, then you don’t need to spend as much as you have to when buying a new policy cover.

However, this is not our topic of discussion today. It is tax benefits of health insurance on payment of the annual medical insurance premium. Like we said, it is important to associate health insurance premium amount with saving cost, income, and money, since it continues to be a visible monetary hindrance, at least in our mind.

For us, it saves a lot of tax energy too!

As you increase your sum insured with age, likely to include your dependent parents, family, and dependent children, the additional amount of premium is not as high as buying a policy. And, the tax benefits of health insurance are greater now. Since we do not exactly know how much insurance you may need or you already may have; let us discuss on the taxonomic of a health insurance cover to give you a fair idea on how much tax you can save henceforth.

If you look at the compelling tax benefits of health insurance, it is likely that you will not treat the annual premium amount as an expense anymore. This will happen on two accounts:

A) A health insurance premium will not feel to be a liability anymore and

B) The health benefits you may accrue will be enormous.

Tax Benefits of Health Insurance Under Section 80D

We say point A because an individual is entitled to Rs 25,000 (maximum limit) as a deduction under section 80D of the Income Tax Act. The same deduction from gross total income can be availed by a member of the Hindu Undivided Family (HUF). In simple terms, it means that the person who pays a premium, or the master policyholder is entitled to tax benefits of health insurance. It can be arrived at deducing the annual premium amount (up to Rs 25,000) from the gross annual income and then, arriving at the total taxable income in a year.

There are section 80D tax benefits of health insurance exclusively. Simply put, it enhances the benefits of tax with health insurance in the toe. Whatever amount you spend on preventive healthcare or on your annual health check-up can be accounted for the annual tax computation. It can be a number of Rs 5,000 spend on self-preventive healthcare or a healthcare amount spent on your dependent parents.  Under section 80D tax clause, the policyholder or the assessee (who is paying the premium) can add up to Rs 5,000 as the amount paid for preventive health-check or annual health check-up.

This payment, of preventive treatment or medical expenditure incurred, can be remitted in cash too.

Which reminds us of another important condition attached to the tax benefits of health insurance. If you pay your annual premium amount in cash, then, you are devoid of any tax benefits of health insurance. Always prefer to pay the premium amount using a bank cheque.   

Coming back to the section 80D of the Income Tax Act, the Rs 5000 deduction is valid for the premium paid for the policy cover of any HUF member. So is the medical expenditure incurred by/for a very senior citizen person (80 years and above) who is a HUF member.

Usually, the medical expense incurred by the assessee for a very senior citizen person is included only if there is no running policy in the name of this senior person.

If the assessee is paying a premium for the dependent parent, then an additional 5000 INR amount can be added. In other words, Rs 30,000 amount is the maximum limit for tax benefits of health insurance if payment is made for all including dependent parents, spouse or dependent children. Also, if the medical expenditure is incurred on the health of a very senior citizen, the upper limit will be Rs 30,000.

Thus, the new total non-taxable amount to be deducted from gross income is now 25,000 + 5000= Rs 30,000. Rs 5,000 can be on account of preventive healthcare only. Another Rs 5,000 for medical expenditure on health of a dependable parent, which means Rs 5000 + Rs 5,000= Rs 10,000.

To sum up, these are the key amount benefits under tax benefits of health insurance:

  • Rs 5,000 is the maximum deduction allowed for the expense incurred for a preventive health check-up.
  • Rs 5,000 additional limit includes expense incurred on dependent parents, spouse or dependent children.
  • In case of HUF, the maximum amount allowed under tax benefits of health insurance is Rs 25,000.
  • Payment should be made in any mode other than cash.
  • Preventive check-up payments can be made in cash to be tax deductible.
  • This limit is applicable only if the assessee has not made any insurance claims in a year.

Tax Benefit Under Section 80DD

The tax benefits of health insurance include Section 80DD too. Medical expenditure incurred in form of training or medical treatment of a dependent is covered as per the clause of section 80DD of the income tax act. This amount can be deducted from the gross annual income to avail further tax benefits of health insurance.

Please note in this case, the dependent may be a disabled person. The dependent can be partially or permanently disabled and must be dependent on the assessee for his/her living expenses. The exact condition of disability or disabled people is specified in the insurance contract.

The only condition is that the dependent person has not made any tax claim under section 80U. The maximum amount for non-taxable income is a flat-deduction of Rs 75,000 (irrespective of the amount incurred as an expense) and in case of the dependent suffering from a severe disability (of 80% or more), the amount deducted as non-taxable income can be Rs 125,000.

Additions To Section 80D

There are still more tax benefits of health insurance to make your health-insurance friendly and help you take its due course of advantage. If the policyholder has a critical illness policy rider attached to the life insurance policy, then he can avail the tax benefit in correspondence with the premium amount paid. Similarly, medical insurance rider on a life insurance policy is subject to tax benefits.

An individual may be an NRI or a local resident of India, it doesn’t matter as long as you meet the eligibility conditions of meeting the tax benefits of health insurance.  

In the Nutshell

The numerous tax benefits of health insurance may convince us further to secure our health in an optimum way. Considering that the sum paid for dependent parents, very senior citizens, dependent children in a year is subject to the tax benefit, is both encouraging and comforting. Take, for example, the preventive health check-up for an individual who is in his mid-30s. it is both necessary and smart to avail the benefit of health insurance by using the vast network hospital coverage in going for annual check-ups. Add it to it the tax benefits of health insurance.

The tax-saving benefit is wholesome in a way. One, it encourages you to practice good health by spending time in preventive healthcare visits. Two, it helps you stay methodical and committed to the health of your loved ones. Third, it helps you divert the extra-savings to save tax towards something more necessary and crucial to your life.

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  1. new Rieker Sneaker says

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