Health Insurance Tax Exemptions under Section 80D

After Life Insurance, Health Insurance is probably one of the most critical risk mitigation actions that you would under take. While life insurance would cover the risk related to your life and some optional top ups like critical illnesses or accident cover, health insurance is more related to covering risks wrt the expense you may have to incur on account of hospitalization for small, medium or critical illnesses.

Those of you who are in regular full time jobs with reputed organizations might be ignorant of various health insurance nuances and its income tax related implications, for the simple reason that your employer would have you and your family insured for health.
Many times, the employer would also contribute a % of your health insurance premium that goes to the health insurance provider. I have personally seen and met many employees who are not even ware of the amount of the premium that gets deducted from their salary on account of health insurance on a monthly basis.

For those who are not in regular jobs or those who have achieved financial freedom, these points anyway become relevant because health still needs to be covered, and it is important that you take the maximum possible tax benefits out of the health insurance premiums that you would be paying.

Let us dig deep and find out the applicable provisions related to health insurance under Section 80D of the Income Tax Act:

1. The category of assesses which are allowed income tax deduction under this section are either Individual assessee or an Hindu Undivided Family (HUF). 

2. Premiums paid for health insurance in any financial year are allowed to be deducted from their taxable income and are thus applicable for 100% tax rebate, just like in case of life insurance premiums.

3. While life insurance premiums are covered under Section 80C and are included in the upper limit of Rs. 1.0 Lacs, health insurance premiums are covered under Section 80D and provide you with an additional tax saving advantage (over and above Rs. 1.0Lacs).

4. In case of an individual assessee, the tax exemption can be claimed for the health insurance premiums that are paid for the assessee himself/herself, spouse, dependent children and parent or parents. The condition of dependency of parent has been removed from FY 2008-09. In other words, even if the parent is independent, the individual can pay the premium and claim the deduction.

5. In case of HUF assessee, tax exemption can be claimed for the premium paid for any member of the HUF.

6. The qualifying amounts under Section 80D for self, spouse and dependent children is up to Rs. 15,000/- and additional deduction up to Rs. 15,000/- per annum for the parents, which means a maximum deduction of your taxable salary by Rs. 30,000/- is possible on an annual basis.

7. An even higher amount of up to Rs 20,000/- (instead of Rs. 15,000/-) is permitted if the person, for whose health insurance the premium was paid, was aged 60 years or more at any time during the financial year in which the premium was paid.  This makes the total deduction as Rs. 35,000/- per annum.

8. Additionally any payment made on account of preventive health check-up of the assessee or his family by any mode including cash to the extent it does not exceed in the aggregate Rs. 5,000/- is also eligible for deduction u/s 80D.

So, if you are in the highest tax bracket and are paying health insurance premiums, you must not lose the benefit of claiming a deduction of a max of Rs. 40,000/- from your taxable salary, which would essentially mean a tax saving of Rs. 12,000/- (30% of Rs. 40,000/-)

Remember that Rs. 12,000 saved per annum copouned over an investment of 40 years of your working career which yields 15% CAGR can turn into an astonishing Rs. 32 Lacs !!

Yes, Rs. 32 Lacs just by saving taxes on health insurance - that's the power of compounding and the wisdom of saving.

So, go on and save your taxes on health insurance premiums.

Stay physically and financially healthy !!

Cheers

Manoj Arora