How Buying Health Insurance Can Give You Tax Benefits?

Health insurance protects you from the financial consequences of health-related problems. It offers financial protection for a wide range of medical conditions and expenses, including minor illnesses and critical health issues. In most cases, health insurance covers doctor visits, hospitalisation, prescribed diagnostics, and prescription drugs. However, you should check the details of your health insurance for specific coverage. Additionally, buying health insurance offers some tax advantages. So, it is also part of intelligent financial planning.

The Indian government encourages people to buy appropriate health insurance plans by providing tax benefits under Section 80D of the Income Tax Act on insurance premium payments.

You should note that the tax benefits provided under 80D differ from those under 80C. Indian taxpayers are eligible for deduction up to Rs. one lakh on certain investments, covered under 80C of the Indian Tax Act.

Knowing the tax-benefit details of buying health insurance can help you in financial planning. Here, we provide all the information you may need to make an informed decision.

Tax Benefits of Health Insurance

Under Section 80D of the Income Tax Act, individuals buying health insurance can claim a deduction of the premium from their taxable income. The deduction amount is, however, capped at Rs. 25,000. However, if you buy this insurance for your dependent parent who is above 60 years old, the limit of deductible amount increases to Rs. 50,000. It means you can claim up to Rs 75,000 when you buy health insurance for yourself and your dependent senior citizen parent. In rare cases when the buyer of the health insurance is also above 60 years, this limit of tax-deductible health insurance premium limit increases to Rs 1,00,000.

However, the total deduction can not exceed Rs. 1,00,000 for individuals under Section 80D.

Here is a table that encapsulates all the details in an easy-to-understand manner:

Tax Benefits of Preventive Check-Ups

You can also claim up to Rs. 5000 of deduction from your taxable income for preventive check-ups But this is subject to the overall tax deduction limit mentioned above. In a scenario when you or those covered under health insurance bought by you do not incur medical expenses due to sickness or hospitalization, you can claim up to Rs. 5000 of the deduction for doctor visits and preventive check-ups.

These tax advantages reduce the overall cost of health insurance, making them more affordable and cost-effective.

Example 1:

Mr. Patel, 45, has a family floater health insurance policy covering himself, his wife, and two children for a premium of Rs. 22,000. Additionally, he has opted for a preventive medical check-up for himself and his wife for a premium of Rs. 3,000. Mr. Patel's insurance premium adds up to Rs 25,000 which is within the Rs. 25,000 deduction limit on health insurance premiums for individuals below 60 years.

Mr. Patel's father, 68, has a separate senior citizen's health insurance policy with a premium of Rs. 18,000. This premium qualifies for a deduction under Section 80D as it is within the Rs. 50,000 limit for senior citizens. Therefore, Mr. Patel can claim a total deduction of Rs 43,000 (Rs. 25,000 for himself and family + Rs. 18,000 for his father) under Section 80D.

Example 2:

Ms. Sharma is a 62-year-old retired teacher. She has a health insurance policy covering herself and her husband for a premium of Rs. 35,000. She pays a premium of Rs. 28,000 for a health insurance policy she has taken for her parents, who are over 80 years old. Ms. Sharma can claim a deduction of Rs. 100,000 under Section 80D for her and her parents' health insurance premium, as both fall under the senior citizen category.

Health Insurance: How You Can Increase Your Benefits Further

When you buy health insurance plans for a longer tenure such as 2 or 3 years, you get the tax benefit each year. Additionally, your insurer may offer some discounts and benefits in terms of additional coverage. In this light, it is a good idea to have a discussion with your insurance agent before making your decision about the specific insurance plan you want to buy.

Health Insurance: Things to Keep in Mind

You should maintain a properly documented record of all the expenses like receipts and bills to claim the deduction.

The preventive check-ups must be done at a registered healthcare centre or qualified medical professional.

The check-ups eligible for deduction may vary, meaning some check-ups may not be eligible. Consult your insurance agent for the list of all check-ups eligible for deduction.

Bottom Line

Health Insurance covers medical expenses for your long-term well-being. Buying health insurance for yourself, spouse, dependent children and parents is incentivised by the government through tax benefits under Section 80D. Tax benefits, given on the premium paid for the insurance, come in the form of deductions up to Rs. 25,000 for individuals under 60 years and Rs. 50,000 for those above 60 years.

So, buying health insurance is not only a long-term financial protection for unexpected medical expenses but also a wise move for tax-planning.

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