Deduction from taxable income on health insurance - the icing on the cake
Image Credits to Bajaj Allianz General Insurance 2020 will always be remembered as a year when a completely unexpected and unprecedented health crisis gripped the world. Over 112 million people were infected by the Covid-19 virus and almost 2.5 million died. Individuals, governments and even the medical fraternity were scrambling to find ways to cope with the incidence of illness and even fatalities that resulted from the Coronavirus pandemic. The health crisis triggered an economic crisis in the wake of lockdowns and other restrictions that were necessitated to curtail the spread of the virus. To alleviate the financial burden that could result from the disease, in early March 2020, the Insurance Regulatory and Development Authority of India (IRDAI) mandated that Coronavirus should be covered in Mediclaim policies. As a result, the costs of admissible medical expenses during the course of treatment of Coronavirus, including the treatment during the quarantine period, are settled according to the applicable terms and conditions of the policy contract and regulatory framework. This is only one of numerous instances in which health insurance could provide financial security with respect to medical expenses. Financial safety-net when illness strikes During hospitalisation for a medical emergency, or even a chronic ailment that is being treated, ideally, patients and their care-givers should focus completely on recovery; being able to pay the bills should not be a concern. This is where health insurance plays an important role. It can reimburse or even directly cover (in case of cashless treatment) expenses incurred on hospitalization, medicines, ambulance, doctor’s consultation and more. Beyond the financial security that such plans provide in the face of illnesses or accidents, health insurance plans offer a range of other advantages. Many insurance companies offer cashless treatment at a range of hospitals that are networked with the insurance company, daily hospital cash that can be used for sundry expenses or the accommodation of a caregiver, cumulative bonuses which can be accumulated to some extent, free health check-ups and life-long renewability, among others. One of the most appealing features, which is actually unrelated to health and physical wellness, is the tax benefit made available by the Government of India. While this benefit should not the primary motive behind getting a health insurance, it certainly is an icing on the cake. Tax benefit on health insurance To encourage people to use health insurance so that they are financially protected when they are most vulnerable, the government offers a tax benefit to individuals and families on premiums paid for health insurance, under Section 80D of the Income Tax Act, 1961. Most pertinently, this deduction is over and above the benefits available in Section 80C, where there is a ceiling of Rs 1.5 lakh. Individuals can claim a deduction from their total income for medical insurance premium paid in any given year. This applies not only for their own insurance premium or that of their spouse and dependent children, but even on premiums they pay on parents under individual policies or health insurance for senior citizens. The total amount of deduction available under Section 80D has been increasing over time. In FY 2019-20 and FY 2020-21 an individual taxpayer and members of HUFs can avail the deduction to varying extents depending on their age and the age of their parents. In case an individual and a parent both make part payments towards the premium for the parents, both the individual and the parent can claim a deduction, to the extent paid by each of them, up to the maximum limit. The below mentioned details may vary based on the government rules and regulations:
Maximum deduction available against premium paid for self + spouse + dependent children (A) | Maximum deduction available against premium paid for policies covering parents (B) | Total Deduction available under Section 80D (A+B) | |
Individual, his/her family and parents are below 60 years old | Rs 25000 | Rs 25000 | Rs 50000 |
Individual and family are below 60 years but parents are 60+ years | Rs 25000 | Rs 50000 | Rs 75000 |
Individual and parents are both above 60 years old | Rs 50000 | Rs 50000 | Rs 100000 |