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Summary: Tax planning is an integral part of our financial well-being. Often, people argue that other tax-saving investment instruments like PPF, NSC, ELSS mutual funds, or NPS help their money grow over a period but one doesn't gain anything from buying health insurance. This couldn't be farther from the truth, as health insurance protects your savings during medical emergencies while giving you access to the best healthcare facilities. Therefore, the next time you decide where to invest at the beginning of the financial year, remember Section 80D and all the benefits a health plan can provide you and your family members amid medical inflation.
We may think that the slight nagging pain in the abdomen is nothing serious, and the next thing we may realise is that we are in the hospital awaiting surgery. With the cost of healthcare facilities rising rapidly, we need to protect our finances, and the best way to do that is by buying a health insurance policy with adequate coverage. Now, health insurance has many benefits, and there's an icing on the cake — the tax rebate you get on the premium paid for a health plan. But how much can you save? Well, let's find out.
Health insurance for better financial health
Many individuals don't buy healthcare plans. There are two significant reasons for that. The first reason is the absolute lack of awareness. Some people either haven't heard about health insurance or distrust the way health insurance works. In all probability, they have met people whose claim requests were rejected. The second reason is that their employer provides them with a health plan or Mediclaim policy, so they believe buying an individual policy would be a waste of money. Well, irrespective of the reason, those not covered by health plans will regret their decisions the day a medical emergency hits.
Now, coming to those who buy health insurance plans, they, too, have two big reasons for doing so. First, they are well aware of the benefits that health insurance provides and how it can shield their savings during difficult times. The second reason is the tax deduction one can avail of when buying a health plan. Let's take a closer look at the maximum tax rebate you can get.
Tax structure and tax saving measures
As a responsible citizen of this country, you must be paying taxes. You would also be aware that there are different tax slabs according to a person's annual income and there are two regimes one gets to choose from. So, the government gives citizens a chance to save money through tax-saving instruments, especially in the old regime. For instance, Section 80C of the Income Tax Act allows you to make various investments and reduce your tax liability up to the limit of INR 1.5 lakh in a financial year. These investment plans include the Public Provident Fund, ELSS schemes, and National Savings Certificate. Similarly, Section 80D provides deductions on the medical insurance premiums paid for yourself and your family members.
What is the investment criterion under Section 80D?
To reiterate, Section 80D of the Income Tax Act provides a tax rebate on buying medical insurance. The premium you pay for the health plan helps you reduce some part of your tax liability. It includes the expenses made on preventive health check-ups as well. The family members you can buy a plan for to get a tax rebate include — your spouse, your dependent children, and your parents.
Let's understand this using the example of Mr Suyash Shukla. Now, let's say 35-year-old Suyash's taxable income is INR 12,00,000. Now, he has already been able to reduce his tax liability by INR 2 lakhs by making investments in PPF and NPS and is looking to save INR 1 lakh more. Can he do it through Section 80D? The answer is yes, and here's how:
· Suyash will buy insurance with a premium of INR 25,000 or above for himself, his spouse, and his children.
· Next, he will buy a plan for his parents, and if they are less than 60 years of age, he can get a tax rebate of up to INR 25,000 a year. That makes it INR 50,000 (INR 25,000 + INR 25,000).
· Now, if his parents are above 60 years of age and he buys health insurance for senior citizens, he can claim a tax rebate of up to INR 50,000. In all, he can avail of a deduction of INR 75,000 (INR 25,000 + INR 50,000).
· If both the policyholder and his/her parents are above 60, the maximum rebate that can be claimed is INR 1,00,000 (INR 50,000 + INR 50,000).
You can save 1 lakh, and there's more
The above example shows how anyone like Suyash can reduce their tax liability by INR 1,00,000. You can avail of a tax deduction of an additional INR 5,000 for the expenses associated with health check-ups for the entire family. However, this deduction for preventive check-ups will be within the overall limit of INR 25,000/50,000. Both Individuals and those belonging to a Hindu Undivided Family (HUF) are eligible for this deduction.
The other advantage is that you don't need to buy three or four different plans. You can also purchase family floater plans. However, all experts will suggest that adding senior citizens to a family floater plan may not be a wise decision because the medical needs of the elderly are quite different from others. In fact, both indemnity and defined benefit health insurance plans qualify for tax benefits.
The exclusions under Section 80D of the ITA
· Payments for health insurance premiums for grandparents, siblings, or working children will not result in tax benefits.
· Regarding the mode of payment, remember that health insurance premium payments made through cash will not be eligible for a tax rebate. Only payments made through internet banking, cheque, draft, or credit card are eligible for tax benefits. However, there's an exception; one can pay cash for health check-ups and avail of tax benefits.
· If your employer makes a group health insurance premium payment on your behalf, you (the employee) won't be eligible for any tax exemption. However, if you choose to make extra premium payments to bump up your group cover, you can claim tax benefits on the additional amount.
Conclusion
Have you ever been to a government hospital? If you visit one, you will see a considerable number of patients queuing up for treatment. The reason they can't go to a private hospital is because of the charges. That's why the government provides tax deductions on health premiums of a Mediclaim policy so that those who can afford it feel encouraged to buy it and opt for a private hospital. This reduces the extreme pressure on government hospitals and ensures better public health. When you buy a health plan, consider tax benefits and thoroughly study the various factors and provisions under the Income Tax Act. Remember, tax benefits are an added advantage, but a health plan's primary purpose is securing you and your loved ones from financial stress during medical emergencies.
Disclaimer: The above information is for illustrative purposes only. For more details, please refer to the policy wording and prospectus before concluding the sales.
