Buy health insurance to save tax, cover medical emergencies

Health-related exigencies and the treatment cost always take us by surprise. Therefore, it is always better to be safe and have health insurance in your investment portfolio.

Moreover, while a health insurance policy has now become a necessity, it can also help in saving taxes. Section 80D of the Income Tax Act allows an individual to claim a deduction in income with respect to insurance premium payments made during the year to secure the health of self and family members.

The deduction under Section 80D is available irrespective of whether one’s parents are financially dependent.

However, one can only claim a deduction for their parents and not for their parents-in-law. So, in this case, if your spouse is also working, then she can also save tax by buying health insurance for her parents and claim a deduction for up to ₹50,000. This way, you can maximize tax savings deduction benefit on your entire family income.

“Irrespective of paying a premium for either your single parent or both parents, as per the provisions of Income-tax Act, you will be able to claim a deduction of the total amount of premium paid subject to a maximum of ₹25,000. This limit can further increase to ₹50,000 in case your parents are senior citizens (that is, equal to or more than 60 years of age)," said Vishwajeet Parashar, chief marketing officer, Bajaj Capital.

Here’s how you can avail of maximum deduction benefit while paying a premium for your health insurance policy: — ₹25,000 for premium payments made to cover self, spouse and dependent children.— An additional ₹25,000 for premium payments made to cover dependent parents aged less than 60 years; or — An additional ₹50,000: for premium payments made to cover dependent parents aged 60 years or above (senior citizen).

You can avail of tax deductions benefit on individual health insurance or family floater health policies. You normally get four types of deductions when you buy health insurance. These include health insurance premium paid for self and family, medical expenses of super senior citizens, health policy premium paid for parents and preventive health check-up expenses.

Health insurance premium payments have to be made in any mode other than cash, otherwise the same doesn’t qualify for the deduction. You can easily make payments via online modes through a debit card, credit card and net banking.

Sudhakar Sethuraman, partner, Deloitte India, said that the quantum of tax savings on account of the above deduction is dependent on the effective rate applicable to the individual. “Assuming an individual has an effective tax rate of 31.2%, then the tax savings will be approximately ₹23,400 {[ ₹25,000 (self and spouse) plus ₹50,000 (parents)]*31.2%}," he said.

Suppose you are 48 years old, and your father is 70 years old. You have taken a health insurance policy for yourself and your father for which you pay a premium of ₹30,000 and ₹45,000, respectively. So, in such a situation, you can claim a deduction of ₹25,000 as the maximum amount under Section 80D. However, you can claim up to ₹50,000 as your father is a senior citizen. However, in the given case, you can claim a tax benefit of ₹45,000 only. Thus, the total tax deduction will come to ₹70,000 ( ₹25,000 + ₹45,000).

So, assuming you fall under highest tax bracket where the effective tax rate is 31.2%, then your tax savings will be approximately ₹21,840 {[ ₹25,000 (self) plus ₹45,000 (parents)]*31.2%}. “Health insurance is gaining popularity due to rising medical costs and the outbreak of the covid pandemic. Insurance policies give tax advantage as medical expenses are generally not eligible for tax benefit, whereas health policies are eligible for deduction. Unless a person is availing the benefit of a lower tax rate under a recently introduced special regime, health policy results in tax savings." said Sumit Mangal, partner, L&L Partners.

However, please note that health insurance shouldn’t be bought only for tax-saving purpose; it should ideally be bought to reduce your financial stress in case of medical emergencies.

Source: Live Mint

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