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Health Insurance: Do’s & dont’s for availing tax benefits

OPD subscription plans are not eligible for any tax sops.

WHILE individuals buy a health insurance policy for financial protection and benefit from tax deductions, they must comply with the conditions laid under Section 80D of the Income Tax Act. The premiums paid for self, spouse and children are deductible up to Rs 25,000 if all of them are below the age of 60, including the preventive health checkup. Those above 60 can claim tax deductions of up to Rs 50,0000.

Moreover, one can avail of the tax deduction for health insurance premiums paid for parents. A tax deduction can be availed for both types of policies — defined benefit where a fixed amount is produced as a claim and indemnity plan where the claim is paid based on the medical expenses subject to the overall sum insured.

Conditions for tax benefits

However, tax deduction on health insurance comes with certain conditions. If they are not followed, the insured will not be able to claim any tax exemption and the exemptions can be reversed.

For one, the health insurance premium must be paid by any mode such as cheque, or money transferred through NEFT or UPI other than cash. However, cash payment on account of preventive health check-ups is admissible for tax benefits.

If the premium is paid by another person on behalf of the individual claiming the tax deduction, then the latter will not be able to claim any tax exemption. The premium has to be paid from the taxable income of the person who wants to claim the tax benefit. Even in a floater plan, the tax benefit cannot be shared.

Those buying a multi-year policy can claim tax deductions proportionately over the policy term. The individual will have to take a certificate from the insurer mentioning the amount that can be claimed.

However, one cannot claim any tax benefit on the health insurance premium paid for in-laws and siblings, even if they are dependent on them for finances.

You cannot avail of tax deductions on outpatient department treatment (OPD) health subscription plans as they are not health insurance plans under Section 80D. However, cashless OPD treatment cover and riders such critical illnesses will entail tax benefits within the overall limit as per the insured’s age bracket.

Treatment for a dependent

A resident individual incurring medical expenses of a dependent (spouse, children, parents, brothers, and sisters) with a disability can claim a deduction under Section 80DD. If the taxpayer incurs any expenditure, then a flat Rs 75,000 deduction is available. If the dependent person is suffering from 80% or above disability, then a deduction of Rs 1,25,000 is available.

Source : Financial Express