A Perfect Guide to Claim Tax Benefits under Health Insurance

The Chopra’s are a beautiful family of 6- Ajay, his wife Meera, their adorable twins, Ajay’s father and grandmother (62 years old and 81 respectively). Ajay is an investment banker and is financially well versed. Yet they chose to stay in a joint family simply because they believe in being the backbone of each other in good and bad times!

Ajay being an investment banker and Meera being a doctor, both are aware about the importance of health insurance but fail to have a health cover!

Ajay’s financial advisor tells him that buying a health insurance cover would fetch him good tax benefits as well. But, can Ajay avail tax benefits for the rest of the family members too?

Can Ajay avail tax benefits for all the family members?

Yes, fortunately Ajay can claim a tax deduction up to Rs. 25,000 under premium paid for health insurance for himself and his dependent children. To add to it, he can also avail a tax deduction up to Rs. 5,000 against preventive health check-ups for his immediate family members.

But, the total tax deduction for health insurance and preventive health check-up is restricted to total Rs. 25,000. In short, you can split the amount of maximum premium of Rs. 20,000 and Rs. 5,000 for annual preventive health check-up costs.

He will also be eligible to avail Rs. 30,000 tax benefit for his senior citizen father. That means, a total of Rs. 55,000 tax deduction can be claimed (Rs. 25,000 + Rs. 30,000) under Income Tax Act Section 80D.

Ajay’s wife Meera can also avail a tax deduction of Rs. 25,000 against her health insurance policy and annual health check-up. Thus, they could claim a total deduction of Rs. 80,000 (55,000 + 25,000) as a couple under Section 80D.

Sadly, but Ajay cannot avail a tax deduction of any amount for his elderly grandmother. This is because she may not be eligible for health insurance due to her old age. However, since a deduction of Rs. 30,000 is allowed for medical costs incurred for every senior citizen, Ajay’s father can certainly claim the same in his income tax return for the payments being made for dependent mother on his behalf.

Ajay can certainly avail all the above tax deductions in his annual income tax return. However, as per Section 80D of the Income Tax Act, he can avail the benefits only if the premium payments have been made via Ajay’s cheque, draft or from his bank accounts through a digital mode. Any premium payment made by cash is not eligible for tax deduction.

Changes in claiming tax benefits

There have been changes made in the last budget for claiming tax benefits under health insurance. Upper limits have been increased from Rs. 15,000 to Rs. 25,000 for someone who’s under 64 years of age and from Rs. 20,000 to Rs. 30,000 for people above 65 years of age.

What is the eligibility to claim tax benefits in health insurance?

The tax deductions in health insurance under Section 80D can be claimed only by the below categories:

If you have a health insurance policy either in your own name or if you pay the premiums under the health insurance for your spouse, parents or dependent children.

All the Hindu Undivided Family (HUF) members.

How to claim the tax benefits in health insurance?

Oh, so you have grown a year older and are still blabbering about the term “filing tax returns”! Hey, wait. Relax. Breathe in and breathe out. It’s not that difficult that it might seem to be. You simply have to login here.

All you need to do is sign-up and download the Income Tax Return form as per your income slab. Along with form 16 you simply have to upload the form along with your digital signatures. And that’s it. You are done!

The funds will get credited within the stipulated time as mentioned by the insurance company post uploading the ITR form.

Is a tax deduction applicable for only health insurance products?

Well, the good news is that the government law for a tax rebate on health insurance is applicable for all the health plans bought from health insurers. Hence, life insurance companies providing critical illness plans or medical insurance covers are equally eligible for tax deductions.

Not only this, you can avail income tax deduction for family floater plan, hospital daily cash as well as critical illness plans.

When can you claim tax benefits from health insurance policies?

You can claim tax deductions under a health insurance policy only for the premiums paid for the current financial year. For example, if you are filing returns for financial year 2016-2017, then the health insurance premiums paid during financial year 2016-2017 can be claimed.

You cannot claim tax deductions on the premiums paid in the past or on premiums that are scheduled for future payments. Therefore, you can claim tax benefits for the present term only.

What about the tax benefits on the claim amount?

The funds that you receive as a part of health insurance claims cannot be treated as an income and therefore are not taxable. They are actually treated as capital receipts (only for critical illnesses) or as reimbursement of medical expenses.

Health and mediclaim plans both are applicable for tax deductions. The policies provided by your employer are also applicable for tax deductions. The premium amount only is taxable whereas the service tax amount is not.

Conclusion

So guys buying a health insurance policy just for availing tax benefits should not be the only motive. Understand the financial risks that you might face from a medical emergency. No doubt that tax deductions can certainly go a long way to reduce the amount of the health product you opt for. Don’t forget to be aware of all the tax-related queries that you might face while filing the income tax returns.