After life insurance, health insurance is probably the most critical insurance protection you must have in your portfolio. The working of health insurance is quite simple. You pay the premium regularly to the insurance company until the policy term. In return, the insurance company promises to compensate you in the event of a medical emergency by paying the bills.
If your annual income falls under the tax liability, it is advisable to purchase a health insurance plan to secure your finances against medical contingencies. Also, to lower your tax payment to an extent. Depending on your specific needs, you can invest in more than one health insurance policy. And every health policy allows you to claim tax benefits on the premium paid, irrespective of whether the plan covers you, your spouse, children, or your parents.
One of the critical aspects of buying health insurance is that you must choose an adequate coverage amount based on the health conditions of your family. For example, if you have a family history of critical illness like cancer, it is better to choose a high sum insured so that you get sufficient protection when needed.
But there is more to your health insurance than just getting reimbursement for the medical cost you incur if you or any of the family members covered under the policy are hospitalised. Just like life insurance, health insurance plans are an efficient tax-saving instrument. You can get valuable tax benefits every year and reduce your overall tax liability.
Health Insurance and Tax Benefits
- The tax benefits on health insurance are covered under Section 80D of the Indian Income Tax Act. Under the section, the premium you pay for the healthcare plan is deductible from the annual taxable income. The maximum tax benefit you can claim under the section in a single financial year is Rs. 25,000.
- The benefit can be extended up to Rs. 50,000 if you have purchased a health insurance policy for your parents aged over 60 (senior citizens). Thus, you can enjoy a maximum deduction of Rs. 75,000 from your taxable income.
- The income tax laws also allow you to claim tax benefits up to Rs. 5000 for the expenses you may incur on the annual health check-up of your parents who are older than 60 years.
Important Things to Know About Claiming Tax Benefit Under Section 80D
If you have a health insurance policy that covers your dependent parents, spouse, and children, you are eligible to get tax benefits. The health insurance tax benefits are helpful for financial planning.
The tax benefit on a health insurance policy is applicable on the premium amount you pay and not on the GST, service charge or any other additional charges you may incur. If your health policy has a critical illness rider, you can claim extra tax benefit on the premium you pay for it.
Under the income tax rule, the tax exemption under Section 80D is only valid if you pay the premium through cheque, demand draft, debit or credit card, net banking, etc. You cannot claim the deduction if you pay the premium through cash.
Final Word
While there are tax benefits available on health insurance, you must not buy the policy only for tax-saving purposes. Instead, you must focus on getting sufficient financial protection for your family. The tax benefit is only the cherry on top, not the cake itself.
