The Income Tax Act of 1961 has many provisions specifically aimed at creating savings, insurance, and planning for taxpayers. Section 80D deduction is one of the most vital provisions as it allows taxpayers to spend on health insurance policies for themselves, their families, and their parents.
This section provides tax deductions for premiums paid on health insurance policies, which is vital in promoting the culture of financial security and health protection. Learn all about Section 80D deduction for health insurance in the guide below.
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What is Section 80D of the Income Tax Act?
Under Section 80D of the Income Tax Act, deductions are provided to individuals and Hindu Undivided Families (HUFs) who pay premiums on health insurance policies. This incentive motivates people to take health insurance for themselves and other family members and reduces the financial burden of medical emergencies.
Section 80D deductions include premiums paid for health insurance policies, critical illness policies, and preventive health check-ups.
Key Benefits of Section 80D
- Promotes Health Insurance: This section encourages taxpayers to plan for their health, well-being, and family members.
- Lessens Tax Liability: Deductions available within this section decrease taxable income, contributing to lesser tax liabilities.
- Applies to a Wide Range of Taxpayers: Individuals and HUFs can benefit from this section.
- Special Relief for Senior Citizens: Senior citizens are allowed higher deductions to encourage elderly coverage.
What Expenses are Covered under Section 80D?
Deduction under 80D is available for the following types of premiums and expenditures:
1. Health Insurance Premium:
- Premium Paid for Self, Spouse, and Dependent Children: This includes premiums paid for a health insurance policy covering the taxpayer, their spouse, and children.
- Premium Paid for Parents: You can claim deductions for premiums paid on your parent’s behalf, whether they are dependent or not.
2. Critical Illness Insurance:
- A policy that covers serious health conditions like cancer, heart disease, or stroke is also eligible under Section 80D. These policies are generally bought to cover high-cost illnesses that might lead to substantial medical expenses.
3. Preventive Health Check-ups:
- The government also motivates taxpayers to take preventive health measures by allowing a deduction under Section 80D for preventive health check-ups. The expenditure for check-ups (including tests, screenings, and consultations) is eligible for deduction, subject to a limit.
Amount of Deduction Available under Section 80D
The maximum deduction under 80D depends on the insured person’s age and the number of people covered under the policy. In the old tax regime, the maximum 80D deduction is divided into categories based on the policyholder’s age.
For the Taxpayer (self), Spouse, and Dependent Children:
- Up to ₹25,000: If the taxpayer, spouse, and children are below the age of 60 years, the maximum deduction available is ₹25,000.
- Up to ₹50,000: If the taxpayer or any family member is a senior citizen aged 60 years or more, the 80D deduction limit increases up to ₹50,000.
For the Taxpayer’s Parents:
- Up to ₹25,000: If the taxpayer’s parents are less than 60, then the taxpayer can deduct the amount paid for health insurance premiums for the parents up to ₹25,000.
- Up to ₹50,000: The 80D maximum deduction limit increases to ₹50,000 if the parents are senior citizens and are aged 60 years or above.
For Preventive Health Check-ups:
The deduction for preventive health check-ups is ₹5,000 per year, a part of the overall deduction available under Section 80D. This means that the total deduction available for premiums and preventive check-ups cannot exceed the limits mentioned above.
Who is Eligible for Section 80D?
Deduction is only allowed if all of the following conditions are met:
- Eligibility of the Insured: Premium should be paid for an individual, his/her spouse, children, and parents.
- Age of the Taxpayer: An individual of any age can obtain this deduction. However, higher deductions are available for senior citizens, both for the taxpayer and the insured persons.
- Mode of Payment: The premium must be paid using any non-cash method, such as a cheque, online transfer, credit card, or debit card.
- Insurance Company: The health insurance policy should be from a registered insurance company with the Insurance Regulatory and Development Authority of India (IRDAI).
Examples of Illustration of Section 80D
Let’s take a few examples to explain how Section 80D deductions apply in various circumstances:
Example 1:
Mr. R, aged 35 years, pays a premium of ₹20,000 for a health insurance policy covering himself, his wife, and two children, all under 60 years of age. He also pays ₹15,000 for a policy for his father, who is 65 years old.
- ₹20,000 for self, spouse, and children (under 60).
- ₹15,000 for the father (senior citizen).
Total deduction available under Section 80D = ₹35,000.
Example 2:
Mr. M, aged 60, pays ₹30,000 for his health insurance as a senior citizen and ₹25,000 for his wife, who is 55 years old. He also pays ₹50,000 for his mother, who is 90 years old.
- ₹30,000 for self (senior citizen).
- ₹25,000 for wife (below 60 years).
- ₹50,000 for the mother (senior citizen).
Total deduction available under Section 80D = ₹1,05,000.
Eligibility of Preventive Health Check-ups under Section 80D
The preventive check-up deduction is part of the overall deduction under Section 80D. The ₹5,000 can cover the cost of preventive health tests, consultations, and screenings.
However, the following conditions apply to the preventive health check-up deduction:
- The ₹5,000 limit applies to the total amount paid for all preventive check-ups (i.e., self, spouse, children, and parents).
- The payment for check-ups must be made through non-cash modes.
- Preventive health check-ups can be claimed once a year, and they can include diagnostic tests, vaccinations, and wellness checks.
Section 80D of the Income Tax Act allows taxpayers to reduce their taxable income while covering their own medical insurance needs and those of their family members. This section promotes financial preparedness for medical emergencies and ensures health care doesn’t compromise financial security. Understanding and using this section can optimize tax liability and secure better health coverage for individuals and families.
