Though geographically, India has six seasons, there is one more season which is often dreaded by all. And that is tax season! This is the season which becomes more active become Jan-March. People look for ways to save their income from the brunt of ‘income tax’ and thus, buy various insurance products.
So, while, everyone knows that insurance can curtail their tax outgo, what are those situations when you will not get tax benefits even if you have bought the insurance products?
Let’s discuss them:
1. Missed paying premiums: To get tax benefits, it is essential to be regular in paying premiums as you can’t claim benefits on a lapsed policy. Usually, most of the policyholders wake up to paying insurance premiums only after receiving the renewal notice from their insurers. However, insurers send renewal reminders only as a matter of courtesy, and thus, you can’t hold them responsible if they fail to send.
2. Paying premiums for relationships which are not covered: Though, there are insurance policies, which let you cover your various relations like in-laws, siblings, grandparents, etc.; you will not get tax benefits if you do so. If we talk about health insurance, then under Section 80D of the Income Tax Act, you can get tax benefits only if the premium is paid towards any of the below relationships:
• Dependent Kids
• Dependent Parents
Hence, the premium paid for relationships other than those listed in the insurance document, do not qualify for tax incentives.
3. Delay in submitting insurance proofs to the employer: Just buying the insurance policy is not enough to get the tax benefit as you would have to submit the premium paid certificate to your employer. However, if you purchase the health insurance policy but do not submit the premium certificate, your employer will not give Section 80D benefits to you.
4. Paying all the insurance premiums in one go: There are insurance policies in the market, which let you pay two-years insurance premiums in one go. However, by doing so, you are losing tax benefits in the second year. Let’s understand it with an example. Suppose you buy a health insurance policy and pay the premiums of two years in one go, which is Rs 40,000. Now, as per Section 80D, you will get tax benefits up to Rs 25,000 only in a financial year, irrespective of how much you have paid as a premium. Though your health insurance policy will remain active in the next year as well; there will be no tax benefit in the absence of premium payment in the second year. Usually most of the health insurance companies extend discounts to those policyholders who pay a two-years premium in one go, however, it will cost them tax benefits in the second year.
5. Paying premiums in cash: Under Section 80D, tax benefits are given only if the premium is paid in any mode other than cash. It means, if you pay your premium in cash, no tax benefits will be given.
While acting as a shield against soaring medical expenses, a health insurance policy is also a great tax saver instrument. However, it is vital to be aware of all the provisions to ensure that the premium you pay qualifies for the tax benefit. So, read your insurance policy document and talk to your insurer, if required.